Wall Street fears big Fed rate hike after Powell ‘comes out swinging’

Powell said in prepared remarks that the Fed was “ready to increase the pace of rate hikes” to fight persistent inflation and that the terminal rate “is likely to be higher than previously estimated” after Treasuries swung to new lows. Swap bets have shifted to show traders are now expecting the Fed to announce a half-point hike at the March meeting instead of a quarter-point move. The S&P 500 index fell nearly 1%, ahead of its decline.

“They’ve only gone 25 bps once, if they go back to 50, who’s to say they don’t go to 75?” said Lindsay Rosner, Multi-Sector Portfolio Manager at PGIM Fixed Income. “The idea that we’re on a ladder—step function lower—it’s definitely throwing water on that.”

Here’s what others on Wall Street were saying:

Ian Lingen of BMO Capital Markets:

“Powell’s prepared text was biased (much more than we had anticipated) with comments that the Fed ‘is prepared to increase the pace of growth if necessary’ and that ‘the final rate peak is likely to be higher than expected’. He said decisions would be taken ‘meeting by meeting’.”

“The chairman also noted that the breadth of the revision in previous quarters suggests that inflation is running high.”

Steve Sosnik, Chief Strategist at Interactive Brokers:

“Goldilocks came out swinging.”

“These comments are completely in line with the data-dependent Fed. Every major inflation measure in February was both higher than expected in January and higher. Meanwhile, other economic reports were generally positive – especially with regard to employment. That In light of that, if he didn’t take an aggressive stance on rates, we would be rightly concerned.”

Michael Antonelli, Market Strategist at Baird:

“The market hates it when interest rate hikes are larger than expected or faster than expected. Investors are trying to gauge where the Fed’s terminal rate will be, so that drives projections even higher, which puts a headwind in stocks.” And makes every rally more volatile.

Simon Harvey, Head of FX Analysis at Monex Europe Ltd:

“Powell has finally regained control of the financial markets after repeatedly trying and forcing them to bow to the Fed’s message. By leaving the door open for a re-acceleration in the Fed’s hiking cycle, which we did not expect because such action does not instill confidence in the Fed’s control over inflation, Powell is letting the financial markets do his dirty work for him.”

Randy Frederick, vice president of trading and derivatives at Charles Schwab Corp.:

“We have seen this story over and over again – even though the Fed has been consistently dovish, there have been instances where the market stopped trusting the Fed, the Fed turned dovish, then the market went down again. This is a constant repetition. That could all change if we get a surprising jobs report this week.”

Max Gokhman, Head of Mosaic Investment Strategy at Franklin Templeton Investment Solutions:

“Even though the latest data underscored what Powell has already highlighted about the surprising flexibility seen in rates, traders were somehow surprised by his forthrightness and priced in a 50 bp hike for March.” The fixation started, which sent the rest of the market into a jittery state.”

Timothy Chubb, Chief Investment Officer at Univest Wealth Division Girard:

“The challenge at the moment is that investors are so quick to dismiss the risks of a US recession as ‘fleeting’. But at the end of the day, we’re skeptical of people’s logic that inflation hasn’t peaked yet. There is not enough data to suggest that the Fed will need to hike interest rates by 50 basis points at its next meeting, as hot inflation data has recently. We need a quarter’s worth of money to push the Fed to do so. One has to see the figures. One month doesn’t work.”

The text of this story is published from a wire agency feed without any modification.