In testimony prepared for the Senate Banking Committee on Tuesday, Powell left the door open for accelerating the pace of monetary tightening again if necessary.

“If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes,” Powell said.

Two Fed officials have disclosed that they had pushed for a 50 basis point hike in the Fed funds rate at the February meeting. This has sparked speculation that the central bank could increase the size of the rate hike at their next meeting on March 21-22.

Over the past few weeks, most Fed officials have said they want to see the employment and consumer price inflation reports for February before deciding how much to raise their policy interest rate at their March meeting.

In an answer to a question at the end of his testimony, Powell agreed that there are “two or three very important data releases to analyze” before the time of the March meeting.

“Those are going to be very important in the assessment we have of this relatively recent data,” he said.

“All of that will go into making the decision, which we have not made… about what to do at the March meeting,” Powell said.

Bill Adams, chief economist at Comerica Bank, said another upside surprise from inflation in next week’s release would likely be enough to push the Fed back to a half percentage point hike later this month.

Michael Gapen, chief U.S. economist at Bank of America, said the Fed’s mistake was to embrace signs of low inflation at their February meeting.

“I think 50 [basis point] will be on the table in March, but it hard for me to move to a call for 50 right now,” Gapen said.

The old conventional wisdom had been that the Fed doesn’t like to move the needle on policy and sticks to a consistent pace of hikes. After all, this is a Fed that moved rates up by 25 basis points at 17 straight meetings from 2004-2006.

But Gapen said Powell has little interest in such tradition.

“Powell’s not a framework guy. He doesn’t have a strong preference for them. He tends to have a preference for the data under his feet,” Gapen said.

In his testimony, Powell noted that a softening trend in inflation was reversed in January. There was little sign of disinflation in the key category of core services excluding housing, he added.

Some of this might have been caused by a milder winter, he said.

“Still, the breadth of the reversal along with revisions to the previous quarter suggests that inflationary pressures are running higher than expected at the time of our previous meeting,” he said.

Overall, “the process of getting inflation back down to 2% has a long way to go and is likely to be bumpy,” Powell concluded.

Recent data on employment, consumer spending and manufacturing production also partly reversed the softening trends that had been seen late last year, the Fed chairman said.

The stronger-than-expected economic data “suggests that the ultimate level of interest rates is likely to be higher than previously anticipated,” Powell said.

The final resting place for the Fed’s interest-rate target has been dubbed the “terminal rate” by investors. In December, Fed officials penciled in a 5.1% terminal rate for Fed funds with a “general tendency” band in a range of 5.1%-5.4%.

Fed officials will give new projections of the terminal rate at their March meeting.

Investors see the Fed hitting a terminal rate of 5.5%-5.75% in September after four straight 25 basis point moves.

Once the Fed gets to the terminal rate, Fed officials see the need to maintain a restrictive stance “for some time,” Powell said.

“The historical record cautions strongly against prematurely loosening policy. We will stay the course until the job is done,” Powell said.

The Fed has raised its benchmark fed funds rate by 4.5 percentage points over the past year. The full effects of the hikes have yet to be felt, especially on inflation, Powell said.

Powell told the Senators that Fed officials understand that their actions affect communities, families, and businesses across the country.

“My colleagues and I are acutely aware that high inflation is causing significant hardship, and we are strongly committed to returning inflation to our 2% goal,” he said.

U.S. stock indexes
DJIA,
+0.64%

SPX,
+1.01%
extended losses in afternoon trading Tuesday as investors digested Federal Reserve Chairman Jerome Powell’s hawkish message that the central bank will not rule out bigger interest rate hikes at the upcoming March meeting. Treasury debt yields rose.