The market is now pricing in a 68% chance of a 50 bps hike on March 22 with the remainder at 25 bps.
Citi economists are chasing the market and have changed their forecast to a 50 bps hike and a terminal rate at 5.50-5.75%.
It's an interesting mental exercise with the Fed right now because the comments regarding 50 bps from Powell were tame and non-committal.
As I mentioned, 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. 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"
The problem is that the Fed in recent history doesn't like the market undecided going into a decision. So market participants are left thinking that it's all-or-nothing and the Fed knows that too. So if you're thinking about 50, and you mention 50, you have to do 50.
On the other hand, you could also take the comments at face value and wait for non-farm payrolls and CPI, which is what BMO fixed income thinks.
"Powell’s testimony wasn’t designed to message to investors that a 50 bp hike on March 22 was a foregone conclusion; rather that in the event of another strong NFP/CPI combo, the Committee is willing to evaluate rate moves on a meeting-by-meeting basis," they write.
I'm sympathetic to both views and I think ultimately, the Fed will have to leak something to Nick Timiraos.
