The US economy is headed for a firmer expansion in this year’s first quarter, according to a range of forecasts. The outlook for a moderately stronger pace of economic activity follows a sluggish increase in GDP in last year’s fourth quarter. The futures market, however, continues to price in a high probability that the Federal Reserve will leave interest rates unchanged at next month’s monetary policy meeting.

IHS Markit’s implied estimate for Q1 GDP growth via yesterday’s February update of US Composite Output Index is 2.5%, modestly above the 1.9% increase for last year’s Q4 (seasonally adjusted annual rate). Markit noted, however, that economic activity slowed, ticking down from January’s 14-month peak.

The consultancy’s survey data for this month “suggest that the post-election upturn has lost some momentum,” said Chris Williamson, chief business economist at IHS Markit. “Growth of business output, new orders and hiring all waned, as did inflationary pressures.” He added that the latest survey data “remains at a level broadly consistent with the economy growing at a 2.5% annualized rate in the first quarter.”

Economists surveyed by The Wall Street Journal this month are looking for a slightly softer growth rate in Q1 – 2.2%, based on the average forecast. The estimate is unchanged from last month’s projection.

Meanwhile, The New York Fed’s model continues to offer one of the more optimistic Q1 predictions – 3.1% (as of Feb. 17). But in the wake of the slightly softer survey figures published by Markit, it’s reasonable to wonder if the New York Fed’s outlook will be trimmed in the next update.

At least one Fed policymaker thinks the economy is strong enough to support a rate hike at the March 14-15 FOMC meeting. Earlier this week Reuters reported:

A Federal Reserve policymaker suggested on Tuesday he would support an interest rate increase at a mid-March policy meeting as long as inflation, output and other data until then continue to show the U.S. economy is growing.

Asked what would dissuade him from backing a rate hike at the March 14-15 meeting, Philadelphia Fed President Patrick Harker told reporters: “Seeing any data that is not consistent with what I see as continued growth in the economy. We’ll see. But I don’t think March should be taken off the table at this point.”

The futures market, however, isn’t persuaded that a new round of tightening is imminent. Fed funds futures are pricing in an 82% probability that the central bank will leave the Fed funds target rate unchanged at a 0.50%-to-0.75% range, based on CME data for Feb. 21.

Nonetheless, “the data continue to be generally supportive of the economic forecasts outlined in the Fed’s December Summary of Economic Projections,” writes Tim Duy, an economist at the University of Oregon who analyzes monetary policy at his Fed Watch blog. “Altogether, the economy seems to be tracking at a fairly brisk pace,” raising the question: Is the Fed falling behind the curve on inflation? Not yet.”

An opportunity for a major shift in the outlook arrives in the March 10 payrolls report for February – five days ahead of the FOMC announcement. TradingEconomics.com’s econometric estimate sees growth decelerating: total nonfarm payrolls are expected to increase 175,000, down from the sharp 227,000 rise in February. That’s still a respectable advance, suggesting that a rate hike can’t be ruled out entirely.

But as analysts at Morgan Stanley remind, the inflationary pressures, while rising, don’t appear strong enough to force the Fed’s hand next month:

First, and most importantly, we don’t think core PCE inflation will give the Fed confidence that 2 percent inflation is on track (see Core PCE Inflation: Weakness Into Spring). The January CPI report could have dented our confidence in that view, but given our analysis on the drivers of that upside surprise, we stay the course.