Gains in technology shares powered Wall Street's main indexes on Wednesday ahead of minutes of the Federal Reserve's most recent policy meeting.
Investors will soon turn their attention to the Fed's March meeting, which will precede the first press conference with new Fed Chair Jerome Powell. The Fed raised rates three times a year ago with the last hike occurring in December. Money fund yields follow the fed funds rate closely, so three hikes would put yields close to 2%. The term is a reference to the hedging strategy of using a put option to guarantee an investor a sale at a preset price to limit losses.
The danger of a rapid return to near-zero interest rates seemed particularly acute in the immediate aftermath of the 2008 financial crisis, as the Fed repeatedly delayed any increase in rates. If inflation, consumer sentiment, or manufacturing output overshoot the current expectations, there could be four rate increases this year. Inflation, according to the Fed's preferred gauge, was 1.7 percent in the 12 months through December and has been below the central bank's 2 percent target for most of the last six years. In 2015 and 2016, the rate-setting Federal Open Market Committee (FOMC) delivered just one rate hike per year.
"The economic expansion continues to be supported by steady job gains, rising household wealth, favorable consumer sentiment, strong economic growth overseas, and accommodative financial conditions", said the report.
Not that he will have taken the market's bout of jitters as casting any aspersions on his abilities to steer the Fed over the coming years.
A big question is how dovish - or hawkish - his attitude towards inflation is.
The report released Friday noted that stock prices had declined after hitting record highs in January. The argue that an economy that is overheating would require potentially destabilizing interest rate hikes later.
"The reason he is different from Janet Yellen and Ben Bernanke is that he has worked in markets and he has a grasp of how the markets work and how they function and the relationship between the Fed and markets", said Quincy Krosby, chief market strategist at Prudential Financial.
Striking the right balance is not always easy though. That's a problem given that, in the last four downturns, the Fed has cut rates by an average of 5.5 percentage points to stimulate renewed growth.
The pace of inflation has already begun to dominate Powell's first month in charge. When Mr. Bernanke made the plan public, it triggered the so-called "taper tantrum" sell-off in the bond market in the summer of 2013.
"Inflation has generally come in below central banks' targets in the advanced economies for several years now", the report said. Those fears have been reflected in the 10-year Treasury note yield, which had jumped to 2.92% at midday Thursday from 2.49% at the end of 2017.
In the midst of an unprecedented leadership transition, Fed officials are publicly debating whether to scrap their approach to inflation targeting, how much of its bond portfolio to retain, and how much longer they can raise interest rates in the face of an unexpectedly large boost from tax cuts and government spending.