Fed likely to maintain signal of three hikes this year; awaits more clarity on 'Trumponomics': Danske Bank

The Federal Reserve is expected to maintain a signal for three interest rate hikes this year in line with the message Chair Janet Yellen set in her recent speech. Further, the upbeat February jobs report has removed the pending obstacle for a rate hike at the monetary policy meeting, scheduled to be held on March 15, Danske Bank reported.

It is worth keeping in mind that the Fed is data dependent and will not hike unless data support the case; the Fed had signaled four hikes in 2016 back in December 2015 but only delivered one. After the central bank turned more hawkish, markets have witnessed a drop in the oil price, lower inflation expectations and a small selloff in the US equity markets; perhaps a small sign that the Fed has turned too hawkish, too quickly.

Further, the Fed still awaits more information about 'Trumponomics' but previous meetings have revealed that 'almost all' Federal Reserve Open Market Committee (FOMC) members think there are upside risks to growth due to the expectations of more expansionary fiscal policy.

Markets have fully priced in a Fed hike this week. Further markets price a 50 percent probability of another hike in June and 2.7 hikes this year and nearly a total of five hikes before year-end 2018.

"We think it is difficult to see a more hawkish pricing of the Fed at the moment, though we expect the Fed to deliver one or two hikes more by the end of 2018 than currently priced," Danske Bank commented in its latest research publication.