Investors have ditched expectations for a half-point rate raise in March, though Powell suggests a hike of that size is still on the table this year
Brendan Smialowski/Reuters
- Investors no longer expect the Fed to rate interest rates by 50 basis points in March, according to the CME FedWatch tool.
- Fed Chairman Jerome Powell said he's inclined to propose an increase of 25 basis points at the March 15-16 meeting.
- Powell suggested he's still open to an aggressive rate hike of 50 basis points this year if inflation doesn't cool off as expected.
Investors are no longer bracing for an aggressively sized interest rate increase at the Federal Reserve's first meeting of 2022, but Fed Chairman Jerome Powell suggested Wednesday a half-point hike is possible if inflation sticks to hot levels.
The CME FedWatch tool showed a 0.0% probability of a 50 basis point rate hike at the Federal Open Market Committee's meeting on March 15 and 16. Just a week ago, the probability of a half-point rate hike stood at 33.7%.
Doubts about a Fed rate hike of that size grew in the wake of Russia's invasion of Ukraine. And Powell said Wednesday it's too soon to tell what the ramifications of that will be.
The near-term effects on the US economy of the invasion of Ukraine, related sanctions against Russia, and an ongoing war remain highly uncertain, he said in written testimony to the House Financial Services Committee.
"Making appropriate monetary policy in this environment requires a recognition that the economy evolves in unexpected ways. We will need to be nimble in responding to incoming data and the evolving outlook," he said.
But a March rate increase is likely with US consumer price inflation at a 40-year high of 7.5%. "I am inclined to propose and support a 25-basis-point rate hike," Powell told the committee on Capitol Hill Wednesday.
For how, he and other Fed policy makers expect inflation to start cooling off this year, he told lawmakers. But if it doesn't, he signaled support for a rate increase of a half percentage point.
"To the extent inflation comes in higher or is more persistently high than that, then we would be prepared to move more aggressively," said Powell.
Investors have been pricing in a series of rate hikes by the Fed as it takes aim at bringing down inflation. The central bank in 2020 pulled its benchmark interest rate to a range of 0% to 0.25% in an emergency response to the COVID-19 pandemic.
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