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Feds Warns Of Larger Rate Hike

In his report to Congress, Powell warned that the Fed was prepared to raise rates faster and higher than expected.

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On Tuesday, Powell told the Senate Banking Committee that,

“the latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated.”

In remarks to the House Financial Services Committee on Wednesday, Powell doubled down on the sentiment, warning that recent economic data suggest “the ultimate level of rates will need to be higher.”

Markets didn’t take kindly to Powell’s stern warning, as stock market investors hate hearing the Fed talk about higher rates.

As of Wednesday afternoon, the benchmark S&P 500 index was down 1.8%, while the Dow Jones Industrial Average had fallen 2.5% compared to the market averages before the hearings kicked off Tuesday morning.

The Federal Open Market Committee (FOMC) meets again on March 21–22, when they will determine whether another rate hike is warranted and also release updated economic forecasts.

Important Upcoming Dates:

Two upcoming data releases will shape the Fed’s rate decision:

  • February jobs report on March 10, and
  • February CPI report on March 14.

Upcoming Rate Hike:

Markets are betting that the FOMC could increase by 50 bps.

According to CME FedWatch, traders believe there is a 70% chance of this outcome, with only 30% predicting a smaller 25 bps hike.