NEW YORK (Reuters) - Goldman Sachs on Wednesday raised its expectations that the Federal Reserve will hike interest rates in the first half of 2017, and J.P. Morgan brought forward its forecast of the next rate increase to May, following robust economic data for January.

They said they based their new forecasts after surprisingly strong figures for U.S. retail sales and consumer prices last month and more hawkish rhetoric from Fed Chair Janet Yellen and other central bank officials.

"We are pulling forward our expectations for the next Fed rate hike from June to May; we continue to look for two hikes this year, in May and September," J.P. Morgan economist Michael Feroli wrote in a research note.

Goldman economists raised the probability of a hike in March to 30 percent from 20 percent and the chances of at least one rate hike by June to 90 percent from 85 percent.


Earlier Wednesday, the government reported retail sales grew 0.4 percent last month, and consumer prices jumped 0.6 percent for their biggest monthly increase in nearly four years.

During her two-day testimony before Congress ending on Wednesday, Yellen said the U.S. central bank will likely need to raise interest rates at an upcoming meeting as the jobs market has improved further and inflation is nearing the Fed's 2 percent goal.

"In short, we now think it is a close call whether the (Fed) will hike the funds rate at the next two meetings or wait until June, and we see very high odds (90 percent) of at least one rate increase by mid-year," Goldman economists wrote in a note.

(Reporting by Richard Leong; Editing by Meredith Mazzilli and W Simon)

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