Powell Eyes Higher Rates, With No Signs Of Overtightening Yet

Some of the key quotes from Fed Chair Powell in today's Senate testimony which has just concluded - all of which leaned hawkish. He signalled that the FOMC was likely to increase its terminal rate expectation from December's 5.1% when its March meeting projections emerge, and opened the door to a potential half-point hike in two weeks' time.

• On faster hikes to a higher ultimate level: "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."
• On potentially overtightening: "Nothing about the data suggests to me that we've tightened too much...indeed it suggests that we still have work to do."
• On current terminal rate assessment: "As I indicated in my testimony, I think the data we've seen so far - and we still have significant data to see before the [March] meeting - suggest that the ultimate rate we write down will be higher than what we wrote in December".
• On the importance of incoming data: "The [strong recent] data may be to some extent related to things like seasonal adjustments or a warm January, but nonetheless they all point in the same direction and they do suggest the possibility that we ultimately would need to raise rates higher than had been expected. Of course we have 2 or 3 more, very important data releases to analyze before the FOMC meeting. Those are going to be very important in the assessment we have of this relatively recent data. All of that will go into making the decision - which we have not made - about what to do at the March meeting."
• On lags in the effect of rate hikes: "We raised rates very quickly last year ... it takes awhile for the full effects to be seen ... we're aware that we haven't seen the full effects yet and we're taking that into account as we're looking at rate hikes."