Other economic signals

First-quarter U.S. economic reports have bolstered the case for additional rate hikes.

“Recent data has been on the upside,” Buskas says. “The January employment report was still fairly strong. Consumer spending is still strong and we have reasonably well-contained price pressures.”

Pointing to recent consumer activity, “retail sales were off the charts. It is hard to see the Fed taking their foot off the gas,” Coleman says.

The U.S. Commerce Department reported a huge surge in January retail sales — up 2.3 percent, which was more than double the forecast by most economists.

“There is still more growth to come,” says Jonathan Basile, economist at Credit Suisse. “Early indications are that first-quarter business investment will be strong. ISM has been running well into expansion territory.” The ISM (Institute for Supply Management) data posted a 54.8 reading in January. A reading over 50 percent indicates expansion, while a figure under 50 percent indicates contraction from the prior month in the manufacturing sector of the economy.

Basile also points to recent data in the U.S. industrial production and capacity utilization reports as additional fuel for further Fed tightening. “We continue to see capacity pressures and the unemployment rate falling,” he says. “The manufacturing sector continues to run above trend.”

The January manufacturing capacity utilization reading was 80.5 percent, which Basile notes, is above the 80.3 percent long-term trend figure for that data series.

The unemployment picture is another key economic piece of the puzzle that could keep the Fed bias toward further rate hikes. January saw an unexpected decline in the overall U.S. unemployment rate to 4.7 percent, the lowest rate since July 2001.

“That could mean inflation pressures,” Basile warns.

“Tighter labor markets could mean labor costs will go up.”