The cost for banks to borrow funds in U.S. dollars surged by the most since December 2015 on Wednesday, a day after a series of Federal Reserve officials jolted short-term interest rate markets with talk of a near-term rate rise.
U.S. 3-month Libor was set near an eight-year high early on Wednesday at 1.09278 percent compared with 1.064 percent on Tuesday. The 2.878 basis point rise was the largest since Dec 17, 2015, the day after the Fed's first rate hike following the financial crisis and the Great Recession.
The jump comes as short-term rate markets are rapidly repricing the risk that the U.S. central bank may deliver another rate increase as early as mid-March, when its monetary policy committee next meets.
In recent days a clutch of Fed policymakers have spoken about the case for a near-term rate hike becoming more compelling in the aftermath of the election of Donald Trump as president and a Republican-controlled Congress intent on pursuing an aggressive pro-growth economic agenda.
The latest voices to argue that case came on Tuesday, when both the influential heads of the New York and San Francisco Federal Reserve banks signaled they are concerned about waiting too long to press rates higher.
"In my view, a rate increase is very much on the table for serious consideration at our March meeting," San Francisco Fed President John Williams said in a remarks delivered in Santa Cruz, California.
Williams is not a voter this year on the Federal Open Market Committee, the Fed's policy-formation arm, but he is viewed as an influential voice in the rate-setting debate.
Short-term interest rate futures have plunged in price this week and now imply a better-than-70 percent chance of a Fed rate hike at its two-day meeting on March 14 and 15, according to CME Group's FedWatch tool.
The Fed has lifted its benchmark overnight lending rate, the federal funds rate, twice since the end of the recession. The first quarter-percentage-point increase was in December 2015 and it followed that up with a second hike of the same amount in December 2016.
The federal funds rate now stands in a range of between 0.5 percent and 0.75 percent.
Fed officials in December signaled that they may pursue as many as three rate hikes this year, but until this week, the market had been positioned for no more than two, with the first one seen coming later this spring or early summer.
(Reporting By Dan Burns Editing by W Simon)