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Rate traders see risk of more than four U.S. Fed hikes this year after hawkish Powell

EconomyJan 26, 2022 05:42PM ET
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© Reuters. FILE PHOTO: Federal Reserve Board building on Constitution Avenue is pictured in Washington, U.S., March 19, 2019. REUTERS/Leah Millis/File Photo

(Reuters) - Hawkish comments from Federal Reserve Chair Jerome Powell on Wednesday have led short-term interest rate traders to begin pricing for the possibility that the U.S. central bank could raise rates more than four times this year.

The Fed signaled it is likely to raise U.S. interest rates in March and reaffirmed plans to end its bond purchases that month as well.

At the news conference Powell also repeatedly emphasized the economy's underlying strength and inflation's persistence, and refused to rule out more aggressive tightening as needed.

“I do not think Fed Chair Powell could have been more hawkish during his press conference than if he raised rates today,” said Tom di Galoma, managing director at Seaport Global Holdings in New York.

Fed funds futures traders are now pricing for 4.4 hikes by December, after previously fully pricing for 4 increases.

Powell "underscored that this period is nothing like the end of the last expansion as inflation is much higher. He is implying that they will need to move faster than back then,” analysts at Bank of America (NYSE:BAC) said on Wednesday in a report. “Bottom line, the risks are skewed to more than 4 hikes this year.”

Powell’s hawkish bent also sent yields on short-and intermediate-dated Treasuries to two-year highs. Two-year yields rose to 1.16% while five-year yields increased to 1.70%. [US/]

Rate traders see risk of more than four U.S. Fed hikes this year after hawkish Powell
 

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