I have three charts for you which demonstrate that the US Federal Reserve is tightening monetary policy.

First, there is the implied probability of a March rate hike. For months it hovered around the 10-20%. But when Donald Trump was elected it jumped up into the 30% range where it has stayed until recently. Hawkish statements by the Fed in late February have caused the probability to soar to where the market sees an 80% chance that the Fed will hike rates in March.

But, one hike is not enough to say the Fed is really tightening aggressively. Yes, the Fed has predicted three hikes in 2017. But what we really have to see is a perception that this rate hike train is so severe that it won’t last — that it will slow the economy enough to stop the Fed from continuing to raise rates. And we’re seeing this through the flattening of the yield curve. 

Why this matters: short-term yields for Treasuries are now at their highest level relative to eurozone yields in 17 years.

That spread differential will push up the US dollar and expand the US trade deficit, creating a source of political tension between the US and its political allies.