Bond traders are betting that the U.S. Federal Reserve will raise its key interest rate by 50-basis points (half a percentage point) at its next policy meeting on March 22.
Traders raised their expectations for a 50-basis point rate hike after Fed Chair Jerome Powell said before Congress that he’s prepared to be more aggressive in the fight against inflation, and that interest rates might have to go higher than previously expected to lower consumer prices.
Interest-rate swaps shifted after Powell’s comments, with bond traders now betting on a half-point increase rather than a quarter-point move.
Looking further ahead, traders expect that the U.S. central bank will raise its key interest rate by 107-basis points over its next four meetings to a peak of 5.60%.
In testimony before the U.S. Senate Banking Committee, Powell said the U.S. central bank is likely to raise interest rates higher than previously expected as inflation remains stubbornly high.
“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, said the chair.
A 50-basis point increase in March would reverse a slowdown in the pace of rate hikes south of the border.
The Fed slowed its pace of interest rate increases to 25-basis points at its last meeting in February, bringing its key interest rate to its current range of 4.50% to 4.75%.
Throughout 2022, the Fed had lifted interest rates by 75-basis points at successive policy meetings before slowing the rate of increase to 50-basis points last December.
Before the Fed’s next policy meeting, Powell will have more economic data to base his decision on, including the February jobs report on March 10 and February inflation data on March 14.
