Analysts at Danske Bank note that the Fed has continuously highlighted that developments in the labour market are a crucial determinant of the Fed hiking pace.

Key Quotes

“Even if we get a disappointing jobs report for March, we believe the Fed will be relatively calm about the state of the labour market. The reports for both January and February were very strong and there are no signs of a general turn for the worse. Although our economic models suggest that we will see a deceleration in economic growth during Q2, this is does not imply that the labour market is in for a turn. Thus, we continue to believe that there will be progress in the labour market.”

“We expect the Fed to hike two more times this year, in July and December, as the Fed seems less worried about inflation and has increased its weigh on labour market and growth data. Yellen has hinted that four hikes this year mean that monetary policy becomes neutral and we think the Fed wants to keep monetary policy slightly accommodative, as there is still slack left in the labour market. We still expect the Fed to hike three-four times next year, as the neutral rate should move higher.”