us financial markets are taking a more cautious approach as they forecast future federal reserve interestrate 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 fedfunds futures were pricing in an over 76 chance of a halfpercentagepoint hike in interest rates at the central bank’s march 2122 policy meeting according to the cme fedwatch tool traders had seen only a 31 chance of a halfpercentagepoint hike on monday and a 33 chance a month ago meanwhile the odds of just a 25basispoint 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 45 to 475 that marked a step down from the size of previous rate increases which included four consecutive “jumbo” 75basispoint hikes and one 50basispoint 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 cautious approach as they forecast future policy decisions” wrote nicholas colas cofounder of datatrek research in a wednesday note “since 1990 the fed has never stutterstepped at the end of a rate hiking cycle powell’s testimony today says the fed is contemplating that now reaccelerating from 25 to 50 basis point increases” see what’s next for stocks after fed’s powell triggers marketrattling rate jolt colas said he remains cautious on us equities since the value of the sp 500 index is still too high given the uncertainty around interestrate policy and economic growth “the us equity market’s tug of war between corporate earnings and interest rates continues” colas wrote “chair powell’s senate testimony reinforced the reality that we still don’t know where rates will peak out how long they will be there and what effect that will have on the us or global economy” the forward 12month pricetoearnings pe ratio for the sp 500 has increased to 175 from 167 since december 31 as the price of the index has increased while earningspershare eps estimates for 2023 have decreased during this time said factset’s senior earnings analyst john butters in a friday report see powell says no decision has been made on potential size of rate hike in march us stocks extended losses on wednesday after powell said on the second day of the testimony that the central bank has not made any decision on the size of a potential interest rate hike later this month despite strong labor market data and a rise in inflation in january the dow jones industrial average djia slumped 233 points or 07 to 32623 the sp 500 spx was off 04 while the nasdaq composite comp dropped 03