FX.co ★ What did Powell say about interest rates?

On Tuesday, U.S. Federal Reserve Chairman Jerome Powell addressed the Senate Banking, Housing, and Urban Affairs Committee. The Chairman issued a strong warning that the Federal Reserve would once again change its monetary policy to allow for tighter rate hikes at a faster pace.

"The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated," Powell said. And if the data set indicated the need for faster tightening, the pace of rate hikes could be increased.

His address to the Senate implies that the Fed is likely to reverse the slower pace after the January FOMC meeting, at which the Fed announced a 25 basis point rate hike. The smallest rate hike since March 2022. It could also be a warning that the Fed may raise its target interest rate from 5.1% to 5.5%–5.75%.

According to the CME FedWatch tool, there is a 70.5% chance that the Fed will raise rates by 50 basis points and a 29.5% chance that the Fed will be less aggressive with a 25 basis point rate hike. The probability pendulum has swung hard given that a month ago, on February 7, the FedWatch tool indicated a 90.8% chance of a 25 basis point rate hike and only a 9.2% chance of a more aggressive 50 basis point hike.

The recommendation from Federal Reserve officials to raise the rate by 50 bps this month is likely to be anticipated, especially after Powell's speech in the Senate on Tuesday.