Traders Prepped for the Fed. Then What?

There's no doubt now. The February employment report was strong enough to give the Federal Reserve a green light to raise interest rates when policy makers meet next week. Jobs increased by 235,000, the unemployment rate fell slightly, to 4.7 percent, and average hourly earnings rose 2.8 percent from a year earlier. That reinforces the idea the U.S. economy is close to full employment.

Although markets are now pricing in an increase in the target federal funds rate next week, it was slow in coming and took a series of hawkish speeches and interviews by Fed officials to get the market in line with their plans. Market odds of a 25-basis-point Fed rate hike are about 100 percent, up from about 20 percent after following the last jobs report on Feb. 3. (See what I wrote last month here.)