Making New Lows As 50Bp Door Left Open

Tsy futures extending session lows (30YY +.0635 at 2.1667%), yield curves bear flattening (5s30s -5.41 to 45.73) as Fed Chairman Powell keeps 50bp hike option alive in the event inflation "stays hot".

• MNI policy story reported as such late Tuesday: The Federal Reserve is set to lift off from its near-zero setting with a quarter-point interest rate increase in March but 50bp hikes later this year are under consideration as inflation pressures worsen, former central bank staffers told MNI.
  • "There is an institutional bias towards doing things at a steady pace and that suggests a series of 25-basis point hikes," said Kenneth West, a University of Wisconsin economist who's been a visiting scholar at several regional Fed banks.
  • However, "one factor that keeps inflation expectations anchored is conviction, and confidence that the Fed is committed to not letting inflation get out of control, so floating doing 50bp later is part of that," he said. Dovish Fed officials, such as Mary Daly of San Francisco, have said a 50bp move may be needed at some point down the road.