Mar 8, 2023 - Economy

Fed chair Powell primes markets for another half-point rate hike

Data: CME; Chart: Axios Visuals
Data: CME; Chart: Axios Visuals

The Fed head's testimony before the Senate Banking Committee on Tuesday telegraphed a growing chance the central bank could lift rates by another half-percentage point when it meets later this month.

What he's saying: "If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes," chair Jerome Powell said in his first testimony to lawmakers in over nine months, as Axios' Courtenay Brown and Neil Irwin reported.

  • Context: A half-point hike would mark a re-acceleration of the Fed's tightening campaign. When the central bank last raised rates in early February, it was by just a quarter-point.

The impact: The Fed Funds futures market — where investors can speculate and hedge on swings in the Fed's key rate — abruptly priced in odds of more than 70% that the Fed would deliver a half-point hike when it makes its next monetary policy announcement on March 22.

  • Expectations of higher rates dragged the S&P 500 down roughly 1.5%, the third worst day of the year so far.

The bottom line: If the Fed has a lot more hiking to do, there's good reason to think we remain in a bear market, despite the strong start to the trading year.

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