U.S. financial markets are taking a more cautious approach as they forecast future Federal Reserve interest-rate decisions after Chair Jerome Powell said policymakers will likely need to raise interest rates more than expected in response to recent strong economic data, according to DataTrek Research.
On Wednesday, the second day of Powell’s semiannual monetary policy testimony before Congress, traders of Fed-funds futures were pricing in an over 76% chance of a half-percentage-point hike in interest rates at the central bank’s March 21-22 policy meeting, according to the CME FedWatch tool. In February, the central bank raised rates by 25 basis points, setting the terminal rate to a range of 4.5% to 4.75%. That marked a step down from the size of previous rate increases which included four consecutive “jumbo” 75-basis-point hikes and one 50-basis-point advance in 2022.
“Since 1990 the Fed has never stutter-stepped at the end of a rate hiking cycle. Powell’s testimony today says the Fed is contemplating that now, reaccelerating from 25 to 50 basis point increases.”Colas said he remains cautious on U.S. equities since the value of the S&P 500 index is still too high given the uncertainty around interest-rate policy and economic growth.
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