Powell Puts 50bp Option On The Table

Not a big surprise that Powell envisages a higher potential terminal rate in his congressional testimony- MNI had expectedPowell to err in a hawkish if data-dependent direction - but it is a significant and surprising development that Powell suggests they could re-accelerate to 50bp hikes.

• Remember, these testimonies are usually pretty unsurprising and straightforward affairs - "we would be prepared to increase the pace of rate hikes" is not an offhand comment. Powell knows that will increase the FOMC's optionality for 50bp vs 25bp in March and shift the market rate path higher.
• And that is a big change from the February step-down to 25bp / Powell's dovish press conference, and December's comments that de-emphasized the size of hikes ("It’s now not so important how fast we go. It’s far more important to think, what is the ultimate level? And then it’s—at a certain point, the question will become, how long do we remain restrictive?")
• A 50bp hike is definitely now on the table for March if the jobs or inflation data surprise to the upside before March 22nd. March 50bp hike pricing probability has accordingly jumped from about 20% to above 40%.