By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters] – Federal funds rate futures have boosted chances of a half percentile tightening by Federal Reserve at next month’s meeting. They were buoyed after hawkish comments made by James Bullard, St. Louis Fed president and Hotter-than-expected U.S. Consumer Prices data for January.

Rate futures in late afternoon trade showed that there was a 62% likelihood that the Fed would raise interest rates 50 basis points by March after Bullard’s comments. This is up from a 30% chance on Wednesday. Futures price in tightening of policy by 164 basis points for this year.

The CME FedWatch tool also showed a 95% likelihood of a 50-basis point increase in March.

Bullard was a voting member of the Federal Open Market Committee in this year’s election. He told Bloomberg that he is now “dramatically more hawkish” in the light the most extreme inflation readings in almost 40 years. Bullard now desires a complete percentage point increase in interest rates over the three U.S. central banks policy meetings.

According to data, the CPI index grew 0.6% after an increase of 0.6% in December. The CPI index climbed 7.5% in the twelve months to January. This is the largest year-on-year rise since February 1982. According to economists, the CPI would rise 7.3%.

Bullard said that it was not a shock-and-awe approach, but rather a sensible response to an unexpected inflation shock.

Analysts believe, however that the Fed will keep a steady approach to tightening monetary policies despite higher inflation than anticipated.

“We all expected an acceleration here…is 7.5% to 7.3% the difference between a 25 and a 50 (basis point hike)? Tom Porcelli of RBC Capital Markets New York, said that the answer is no.

“I hope the Fed’s response function to such a miss isn’t as sensitive.” It’s true that we have had stable inflation for many months.

ActionEconomics commented on Bullard’s “very hawkish” reputation, adding that it will monitor comments by Fed officials.

Inflation data revealed that the U.S. benchmark 10-year bond yield hit 2%, for the first time since 2 1/2 years. It rose as high as 2.056%. The last time it was at 2.0539%.

U.S. 2-year/10th-year yield gap sank to 43.7 base points. This is the narrowest spread since August 2020. It was caused by traders pricing in increases that would push short-term rates higher.

Barclays In a Thursday research note, (LON:), it stated that its Fed rate hike projections for this year have been revised to five rate rises from the previous three.

Barclays stated that “Following today’s January CPI report which contained core inflationary pressures which exceeded our expectations by one-tenth and the January Employment Report, which revealed a hiring pace that was more durable that prior data suggested,” Barclays had written.

It stated that it had a new policy forecast that implied an end of the tightening cycles in mid-2023. The terminal target range for Fed funds rates was 1.75-2.0%. Barclays stated that this was 25 basis points more than the previous rate and took place six months earlier.

Since March 2020, the fed funds rate was close to zero. This is because the Fed cut rates in order to protect the economy against the COVID-19 pandemic.