There was open debate ahead of Wednesday’s Fed meeting over whether the central bank should start raising rates from near zero with a traditional quarter-percentage-point increase. or a larger move of half a percentage point.
The economic and financial uncertainty posed by Moscow’s invasion of Ukraine three weeks ago seemed to put an end to this debate. Fed Chairman Jerome Powell signaled during his testimony to Congress on March 2 his preference to start with a quarter-point hike.
One reason Fed officials are likely to be comfortable without a bigger move — for now — is that borrowing costs have risen and other measures of financial conditions have tightened since the beginning of this year. Mortgage rates, which had risen nearly a full percentage point in the first two months of the year, have jumped in recent days, with several lenders reporting that a 30-year fixed-rate mortgage is now carrying a premium rate. at least 4.5%.
Corporate borrowing costs, measured by the spread between investment-grade bond yields and Treasury bill yields, have also risen in recent days. According to Deutsche Bank, these spreads are now up about 1.5 percentage points from near-record highs last year.