Odds of big rate hike soar as Powell testifies more pain is coming

Federal Reserve Chairman Jerome Powell He struck a cautious tone in his semi-annual congressional testimony On Tuesday, the chances of an even larger interest rate increase are higher

Powell said that the economy had remained stronger than expected despite higher rates. And he hinted that this year rates would rise further than was anticipated. Investors have been betting on an even bigger Fed rate increase at their meeting this month.

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Powell claimed that Powell was correct. “suggest that the ultimate level of interest rates is likely to be higher than previously anticipated. 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.”

“Restoring price stability will likely require that we maintain a restrictive stance of monetary policy for some time,” He concluded.

Markets responded immediately. CME Group’s FedWatch Tool, which computes the likelihood of an increase in Fed rates by using futures prices, calculated the probabilities prior to Powell speaking. They estimated that the chances of a slightly milder 0.25 percentage points increase would be around 70%.

Powell said that the odds were flipped. The odds of getting a zero were as of Tuesday morning.