NEW YORK, March 2 (Reuters) - Traders raised their stakes on Thursday ahead of a speech from Federal Reserve Chair Janet Yellen on Friday that the Fed would raise short-term borrowing costs at its upcoming March meeting.
Prices on federal funds futures have plummeted since Tuesday in the wake of hawkish rhetoric from a group of Fed officials who signaled an interest rate hike is forthcoming on signs of an improving labor market and inflation nearing its 2 percent goal.
Yellen's address on the economic outlook at 1 p.m. (1800 GMT) in Chicago is seen as cementing expectations of a quarter-point rate increase to a 0.75-1.00 percent range at its March 14-15 policy meeting.
"The market is looking to Yellen’s speech tomorrow to provide the final push that leaves little doubt the Fed will lift rates again on March 15th," RBC U.S. economists wrote in a research note on Thursday.
The Federal Open Market Committee, the central bank's policy-setting group, last raised rates in December by a quarter point to 0.50-0.75 percent.
On Tuesday, New York Fed President William Dudley, among the most influential U.S. central bankers, told CNN the case for higher rates "has become a lot more compelling" since Donald Trump's presidential win and Republicans retaining control of Congress.
Dudley's remarks opened a floodgate of similar views from other Fed officials, propelling traders' view of a rate hike less than two weeks from now to near 78 percent late on Thursday in the futures market, according to CME Group's FedWatch tool.
Last Friday, traders' expectations of a rate hike in March was about 27 percent.
On Thursday, Fed Governor Jerome Powell said the case for the Fed to hike in March "has come together," and three rate increases in 2017 would likely be needed.
Economists at Morgan Stanley and UBS said on Thursday they expected the Fed to raise rates at its upcoming meeting.
Morgan Stanley and UBS are two of 23 primary dealers or firms that do business directly with Fed.
(Reporting by Richard Leong; editing by Diane Craft)