A 50 basis point increase by the US central bank would be its largest since May 2020, though a quarter point increase is still the most likely scenario.
Money markets are reflecting increased speculation that the Federal Reserve might opt for its first super-sized boost to borrowing costs in more than two decades.
An increased drumbeat around the prospect of a bigger hike in recent days may have added fuel to the sell-off in Treasury markets on Tuesday that caused benchmark yields to surge.AdvertisementCo chief executive officer Jamie Dimon last week warned that Fed tightening might not be as “sweet and gentle” as some expect, while billionaire investor Bill Ackman said the Fed should raise its key interest rate by 50 basis points in March to “restore its credibility”.
The central bank is behind the curve, according to Nelson, and so must be prepared to tighten faster if needed. It should also avoid getting locked in to a path by allowing the market to become convinced hikes will only be gradual, he wrote in a note on Tuesday.