U.S. financial markets are taking a more cautious approach as they forecast future Federal Reserve interest-rate decisions after Chair Jerome Powell said policymakers will likely need to raise interest rates more than expected in response to recent strong economic data, according to DataTrek Research. On Wednesday, the second day of Powell’s semiannual monetary policy testimony before Congress, traders of Fed-funds futures were pricing in an over 76% chance of a half-percentage-point hike in interest rates at the central bank’s March 21-22 policy meeting, according to the CME FedWatch tool.
Traders had seen only a 31% chance of a half-percentage-point hike on Monday, and a 3.3% chance a month ago. Meanwhile, the odds of just a 25-basis-point increase shrank to 24% from 69% on Monday. In February, the central bank raised rates by 25 basis points, setting the terminal rate to a range of 4.5% to 4.75%. That marked a step down from the size of previous rate increases which included four consecutive “jumbo” 75-basis-point hikes and one 50-basis-point advance in 2022. “The Federal Open Market Committee (FOMC)’s downshifting to a 25 basis point rate increase in January now appears to have been a mistake, and markets are now taking a more caut …