Morgan Stanley economists said Federal Reserve Chairman Jerome Powell signaled a potential return to a half-point rate hike at central bank's March meeting, depending on the strength of incoming economic data. Powell spoke before the Senate Committee on Banking, Housing and Urban Affairs Tuesday morning in the first of two days of Congressional testimony. He said that rates are likely to be higher than previously anticipated , and that the Fed has a strong commitment to returning inflation to its 2% target. The economists said Powell opened the door to raising rates by a half percentage point on March 22 even though Fed officials have previously suggested that policymakers could continue with quarter-point hikes. "Chair Powell's assessment of the economic outlook acknowledged that higher rates are impacting interest-sensitive components of the economy, including housing, but that there has been a concerning reacceleration in activity in January, partly reversing the softening trends that we had seen in the data just a month ago,'" they wrote. This also means that Friday's jobs report is especially important. Economists expect 225,000 jobs were added in February, according to Dow Jones. "Upside surprises to Friday's payroll report could drive a faster and longer tightening cycle," the Morgan Stanley economists added. The Fed raised its target fed funds rate range by a quarter point on Feb. 1, after a half-point hike in December and four 75 basis point hikes prior to that. A basis point equals 0.01 of a percentage point.
