BlackRock, BofA Warn Traders March Fed Meeting Might Turn Liveby
Rick Rieder says odds for next month are closer to 50%
Current market-implied probability is around 30%, futures show
BlackRock Inc. joined Bank of America Corp. in warning traders that they may not want to give up on the Federal Reserve’s March meeting.
Fed funds futures are pricing in about a 30 percent chance policy makers will raise interest rates a quarter-point next month, data compiled by Bloomberg show. For Rick Rieder, chief investment officer of global fixed income at the world’s biggest money manager, the likelihood is closer to 50 percent. Bank of America said Fed Chair Janet Yellen may use congressional testimony next week to convince traders that March is a “live” meeting.
“Though our base case is that the Fed may not raise rates next month, a March hike is still very much on the table,” Rieder said in a blog post Friday. "The reflationary environment that has taken hold in the economy is likely to result in a moderately faster pace of rate normalization than what many expect."
The Fed raised rates in December for the second time in about a year, increasing its target by 25 basis points to a range of 0.5 percent to 0.75 percent. At the same time, officials released projections showing a median forecast of three hikes in 2017, compared with the prior outlook for two.
The dollar has lost ground since setting a 14-year high in January, as speculation faded that the Trump administration will be able to deliver anytime soon on promises to spur economic growth by cutting taxes and boosting infrastructure spending. Ten-year Treasuries yield about 2.41 percent, down from 2.64 percent -- the highest since 2014 -- reached the day after the Fed increased rates in December.
Most investors aren’t expecting the Fed raise rates again until at least June, futures show. Yet signs of strength in the labor market could put pressure on policy makers to act. U.S. employers added 227,000 jobs in January, the most in four months, data showed last week. At the same time, average hourly earnings rose 2.5 percent from a year earlier, the weakest since August.
Yellen may see a reason to raise the odds of a March rate increase "close to 50 percent and make March live," Bank of America strategists Ralf Preusser and Shyam Rajan wrote in a note Friday. "It is hard to see how Yellen can deliver a message that is more dovish than what the market is already pricing."