U.S. Treasury yields spiked with the 5-year yield reaching 3%, following Federal Open Market Committee (FOMC) Chair Jerome Powell's hawkish comments at an International Monetary Fund panel. Some of the statements that really moved markets were his declaration that a 50 basis point hike for May is on the table. Another was that it may be necessary to raise rates "expeditiously" to "restore price ability" which was the most urgent priority.

This is further confirmation of the Fed's move in a more hawkish direction as there is very little discussion of its employment mandate. Although, this is because the economy is pretty close to full employment, and Powell spoke of the 'hot labor market' as being a risk to price stability which means that he may even welcome an increase in unemployment if it would moderate inflation pressures.

This was in-line with market expectations but still caused a major decline in stocks. Prior to this, the stock market was up 3.5% for the week due to positive economic news and hopes that inflation and geopolitical issues were ebbing. This pleasant state of affairs turned into a disaster as the S&P 500 (SPY  ) was down by more than 5% from Thursday's high with steeper drops for the Russell 2000 (IWM  ) and Nasdaq Composite (QQQ  ). Now, a retest of the February lows seems likely as the S&P 500 will likely face selling pressure into the May meeting.

Currently, expectations are for a 50 basis point hike as odds increased to 97.6%. Expectations for year-end Fed funds increased to 2.75%.

Powell's comments are also consistent with public statements from other FOMC members. Even typically dovish members are sounding the alarm on the need for hikes.

Regarding concerns that the Fed hikes could lead to a recession, Powell said, "Our goal is to use our tools to get demand and supply back in synch so that inflation moves down and does so without a slowdown that amounts to a recession. I don't think you'll hear anyone at the Fed say that that's going to be straightforward or easy. It's going to be very challenging. We're going to do our best to accomplish that."

Of course, this is a major change in terms of the Fed's approach which was to let inflation run hot for much of 2021 to balance out years of under-trend inflation, as it looked to target 'average inflation levels'. They also said that inflation would be 'transitory', which also turned out to be incorrect.

Still, some argue that despite its hawkish rhetoric, the Fed is still behind the curve as its recent hawkishness is only keeping pace with increasing inflation due to Russia and Ukraine over the last couple of months.