Fed board member Powell says March rate hike possible

US stocks were little changed on Friday after Federal Reserve Chair Janet Yellen said an interest rate hike would be appropriate this month if economic data holds up.

"We now judge that it will be appropriate to gradually increase the federal funds rate if the economic data continue to come in about as we expect", Yellen said.

Inflation data on Wednesday showed consumer prices in January posted their biggest monthly gain in four years and left the 12-month increase in prices at 1.9 per cent - just below the Fed's 2 per cent target.

Yellen has always been in favour of raising the fed rate during her three-year tenure, but the US' contracted economic growth, low crude oil prices and sluggish inflation across the world has been dampening the effects of a strong dollar.

Waiting too long to raise rates could mean the Fed has to hike more rapidly at some point, which "could risk disrupting financial markets and pushing the economy into recession".

But with Fed boss Janet Yellen due to speak on Friday the greenback has bounced back as experts say the bank is odds-on to tighten monetary policy in the face of an improving U.S. economy.

Her comments follow those of New York Fed president William Dudley and San Francisco Fed president John Williams, who both indicated a rate hike made sense.

The Fed has long said it expects three rate increases this year. But headed into the Fed's next policy meeting on March 14 and 15, it has taken on new significance.

This suggests that investors will begin to price in a potential interest rate increase more seriously. The FOMC likes to see the rate at 2 percent, and although inflation has consistently remained below that threshold, other positive factors have been overcompensating enough to warrant movement of the federal funds rate, in the Fed's estimation.

The CME Group, which tracks investor sentiment on Fed rate hikes, now puts the probability of a March hike at 75 percent, up from around 20 percent a few weeks ago.

At 1.7 percent euro zone growth in 2016 almost matched the United States, corporate profits are strong and inflation in February was near the European Central Bank's target - all evidence that the single-currency zone had avoided a unsafe deflationary spiral.

"The process of scaling back accommodation likely will not be as slow as it was during the past couple of years", she added.

Asked whether there had been a conscious effort by Fed officials to signal a probable rate hike at that meeting, Fischer said, "If there has been a conscious effort, I'm about to join it". "A "neutral" policy stance is one where monetary policy neither has its foot on the brake nor is pressing down on the accelerator", Yellen says.

  • Zachary Reyes