(Adds details, analyst comment)
March 7 (Reuters) - Traders of futures tied to the
Federal Reserve's policy rate were pricing in a
half-percentage-point hike in interest rates at the U.S. central
bank's March 21-22 policy meeting after Fed Chair Jerome Powell
said on Tuesday that continued strong inflation data could
require tougher measures.
Implied yields on fed funds futures contracts fell, pointing
to a 48% probability that the central bank will lift its
benchmark overnight interest rate to the 5.00%-5.25% range on
March 22, from the current 4.50%-4.75% range, according to CME
Group's FedWatch tool. That was up from the 30% chance seen
before Powell's testimony before the Senate Banking Committee.
Futures briefly showed more than a 50% chance of a
50-basis-point (bp) hike immediately after Powell's remarks.
The futures contracts pricing also points to firming
expectations for the policy rate to rise to a 5.25%-5.50% range
by June.
"A 50-bp hike in the next meeting is possible, but it is
going to be dependent on the payrolls not slowing down and CPI
(Consumer Price Index) numbers showing that the disinflation
progress we've made is stalling," said Scott Ladner, chief
investment officer at Horizon Investments.
With the next policy meeting two weeks away, Friday's
U.S. employment report for February along with an inflation
report next week will be crucial in determining the pace of
upcoming rate increases.
Powell's testimony on Tuesday marked a
stark acknowledgement
that a "disinflationary process" he spoke of repeatedly in
a Feb. 1 news conference may not be so smooth.
(Reporting by Ann Saphir and Gertrude Chavez-Dreyfuss in New
York; Additional reporting by Shristi Achar in Bengalaru;
Editing by Kirsten Donovan, Raissa Kasolowsky and Paul Simao)
Messaging: rm://gertrude.chavez.reuters.com@reuters.net))
