The Yellen Fed ended on a high note. She took over the reins the of Federal Reserve an implemented a strategic normalization process monetary policy, and helped engineer not only the first post-crisis rate hikes but also the beginning of unwinding its balance sheet. Most reckon she has done an admirable job at the Federal Reserve, not only in terms of the economic performance on her watch but also the nimble execution policy.

Her final FOMC statement was not celebratory in any overt way, but it expressed confidence in the trajectory or growth and inflation, both of which appeared to have been upgraded, even though the risk assessment was unchanged from balanced.

There is little doubt the Fed will raise rates in March. That will be Powell’s first meeting as chair. A rate hike at his first meeting makes for good optics for the central bank’s credibility. The members’ economic forecasts will be updated and the risk on the upside. The rate hike may be backed up by a change in the risk assessment.

There is some talk that perhaps the Fed would raise rates more than the three times suggested by the December forecasts. That is rich. The market had to be taken by the hand last year and essentially told the Fed would likely raise interest rates before investors were convinced. The Fed funds futures strip implies two rate hikes appear fully discounted, but not a third this year.

We have often argued that the Fed needs to either have press conferences after every meeting, like other central banks, such as the ECB and BOJ or demonstrate it can raise rates without a press conference. Otherwise, it needlessly ties its hands and limits the number of live meetings (where policy can be changed) to four, or half of its eight gatherings.  We suspect this is a course Powell may consider in the early part of this tenure.

The US dollar strengthened in response to the FOMC statement yesterday and it is firmer in the Asian session. The Antipodeans and yen are leading on the downside.The softer than expected inflation data by Australia earlier this week dampened ideas that the central bank can raise rates in coming months and its interest rate support has been declining. Note that the US two-year yield is around 17 bp more in Australia’s and the US five-year yield offers about a 15 bp premium. Australia offers a seven basis point premium to the US, but it seems to be a matter of time before it too disappears. The Australian dollar is at its lows for the week just above $0.8000. A break of $0.7970 may bolster confidence that a high of some import is in place.