Analysts said the odds strengthened on March 10 after figures showed better than expected jobs growth in February.
According to the Bureau of Labor Statistics, employers added 235,000 new jobs, exceeding economists’ forecasts.
Fed chair Janet Yellen said last week that the central bank could raise rates in March if employment and inflation figures met their expectations.
The central bank increased rates, which have been at near-historic lows since the financial crisis, to a range of 0.5% to 0.75% in December.
According to Bloomberg data, the futures market for the key Federal fund interest rate puts the likelihood of a rate rise at between 98% and 100%.
Traders also see better than even odds of two further rate rises this year, based on the price of Fed funds futures contracts traded at CME Group’s Chicago Board of Trade.
The Fed’s next meeting will conclude on March 15.
The Trump administration also welcomed the jobs figures, which covered the president’s first full month in office.
White House press secretary Sean Spicer tweeted that the figures were “great news for American workers… in first report for [President] Trump”.
Shares and bond markets have climbed on what is expected to be the first rise in US interest rates in nearly a decade.
The Federal Reserve is expected to announce the start of the gradual rate rise process at 19:00 GMT.
US markets opened higher, but lost ground as oil prices slumped.
A US rate rise would have global repercussions, and could adversely affect emerging economies, experts say.
The Fed is expected to raise its benchmark overnight interest rate from near zero, encouraged by a strengthening US labor market.
Analysts have been speculating for months as to when the first rise might be, with global stock markets rising and falling as Fed rate meetings come and go.
Low interest rates have generally been helpful for stock market investors, but Fed officials have indicated the likely decision in advance, removing some of the uncertainty that investors dislike.
In London, the FTSE 100 gained 0.72% by the close of the market. Paris and Frankfurt markets made smaller gains.
Many Asian markets closed significantly higher – Japan’s Nikkei 225 gained 2.6%, and Hong Kong’s Hang Seng rebounded, rising 2%.
Markets have already priced in a US rate rise, but investors will also be looking at the Fed’s announcement to gauge the likely path of future rate rises, analysts said.
The prospect of gradual rises could bring some stability to markets, but if the Fed were to raise rates more quickly, markets may take fright, analysts said.
The World Bank warned in September that a US rate rise could increase the risks to emerging economies caused by disruptions to capital flows.
With the US offering better returns, investors may decide to move money out of emerging economies.
Foreign governments could also have to pay more for debt issued in US dollars.
European stocks have traded lower on September 18 after the Federal Reserve’s decision not to change interest rates, as concerns about the health of the global economy were renewed.
The Federal Reserve made it clear that worries about the global economy had influenced its decision to keep rates on hold.
“The outlook abroad appears to have become less certain,” said Fed chair Janet Yellen, at a news conference.
At lunchtime, the UK’s FTSE 100 was down 66.66 points, or 1%, at 6,120.33.
Bigger falls were seen elsewhere in Europe, with Germany’s Dax index down 2.5% and France’s Cac 40 dropping 2.6%.
Markets could now face a prolonged period of uncertainty as to the direction of US interest rates.
In London, banking stocks saw some of the biggest falls, with Royal Bank of Scotland down 2.6% and Barclays dropping 2.1%.
On the currency markets, the pound rose 0.35% against the dollar to $1.5646, and was up 0.4% against the euro at €1.3684.
Following the Fed’s decision the dollar fell sharply against the yen, dropping below the 120 yen mark. The move hit shares in Japan – particularly among exporting companies – and the country’s Nikkei index closed down 2%.
Japan’s stock market fell on September 18 as the yen strengthened against the dollar in the wake of the Federal Reserve’s decision not to raise interest rates.
The Nikkei 225 index closed down 2% at 18,070.21. The dollar fell against the yen following the Fed’s decision to keep its interest rates unchanged, which hit shares in Japanese exporters.
Shares in Toyota and Honda dropped 1.4%, while Panasonic was 2.1% lower.
A stronger yen against the dollar affects exporters, as it makes their goods more expensive to sell overseas.
The Fed’s decision to hold interest rates also renewed concerns about the strength of the global economy.
Photo WSJ
The US central bank said worries over the global economy, particularly China, had influenced its decision not to raise rates.
US shares saw choppy trade after the decision, with both the Dow Jones and S&P 500 closing lower.
Chinese shares were mixed after government data showed that property prices had shown some signs of recovery.
New home prices rose for a fourth consecutive month in August, up 0.3% from the previous month, but were down 2.3% from a year ago.
The property sector accounts for 15% of China’s economic growth, so even minimal gains have a positive impact on the world’s second largest economy.
The Shanghai Composite index ended 0.4% higher at 3,097.92, while Hong Kong’s Hang Seng index closed up 0.3% at 21,920.83.
In Australia, the S&P/ASX 200 index erased earlier losses to end up 0.6% at 5,178.50.
South Korea’s benchmark Kospi index finished 1% higher at 1,995.95.
The Federal Reserve has decided to hold interest rates unchanged, keeping them at the same level since December 2008.
The central bank said nine members of its Federal Open Market Committee voted to hold the key federal funds rate target at 0 to 0.25%.
Committee member Jeffrey Lacker was the only dissenter, favoring a 0.25 percentage point rise.
The Fed hinted that concerns about the strength of the global economy influenced the decision.
“Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term,” the committee said in a statement.
Signs of weaker growth and stock market turmoil in China have led to fear among investors about US economic growth.
The Federal Reserve’s long-term policy is to keep interest rates low until employment levels improve further and the main US inflation rate approaches its 2% target. Inflation is currently at about 1.2% in the US, kept down by cheaper oil and a strong dollar.
The Fed said in its statement that it still wants to see more improvement in the labor market, even though recent data showed the unemployment rate for August was at 5.1%, the lowest since 2008.
It also wants to be “reasonably confident” that inflation will increase.
“The committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run,” it said.
Following the Fed’s announcement, US stocks rose and the dollar fell.
The Dow Jones industrial average was up 0.28%, to 16,786.58, the S&P 500 rose 0.45%, to 2,004.26 and the NASDAQ gained 0.61%, to 4,918.90.
The dollar index, which compares the value of the currency with six other currencies, fell 0.81%, to 94.651.
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