Janet Yellen's room for manoeuvre is shrinking

More Fed policy-setters, including Chairwoman Janet Yellen and Vice Chairman Stanley Fischer, will speak on Friday, likely providing further signals on the Fed's policy path ahead of the March 14-15 meeting.

The US Federal Reserve would probably raise its benchmark interest rate this month, Evercore ISI said, switching its call from May previous year.

Already, though, traders in futures markets have put the probability of a rate hike at 75%, according to data tracked by the CME Group.

Investors shifted into the US unit after New York Federal Reserve president William Dudley said there was a strong case for borrowing costs to rise, while his San Francisco counterpart John Williams expects such a move to get "serious consideration" when the bank meets this month. Analysts say the central bank is likely to closely scrutinize the monthly jobs data, which will be released on March 10, for any signs the economy is departing from its charted course.

"The gains in the USA dollar appear to be more a function of shifting expectations of Fed policy than new clarity on fiscal policy.President Dudley's remark that an increase in rates has become "more compelling" was the catalyst", says Win Thin, head of emerging market currency strategy at Brown Brothers Harriman. The personal consumption expenditures price index, the Fed's favored measure of inflation, rose 1.9 percent in the 12 months ending in January, almost reaching the Fed's 2 percent inflation target.

"After dominating the markets since November, President Trump could now fade into the background as the focus shifts to the Fed and the prospect of rate increases", said Kathleen Brooks, Research Director at City Index in London.




When the Fed published its economic forecasts for the next three years in December it suggested that the Federal Funds rate may rise to 1.4% in 2017, 2.1% in 2018, and 2.9% in 2019.

Yellen noted that various stumbling blocks slowed the Fed's anticipated pace of rate increases in 2015 and 2016, including the oil price crash, a strengthening dollar, market turbulence and a slump in USA economic and job growth. It was its first increase since December 2015, when the Fed raised its key rate from a record low. "Looking ahead, we continue to expect the evolution of the economy to warrant further gradual increases in the target range for the federal funds rate". Platinum was down 3.2 per cent at US$982.50, after falling below its 200-day moving average, while palladium dropped 1.2 per cent at US$765.65.

And inflation, which had been lagging at chronically low levels, has been edging steadily up, reflecting in part a rebound in gasoline prices and higher wages.

What is clear, however, is that if and when the Fed does embark on this process, it should have a significant cushion of standard official interest rate leeway to address any untoward consequences on the financial sector and the real economy.

And New York Fed Chief William Dudley said the case for a rate increase has become "a lot more compelling".

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