Traders began betting on Thursday that the Federal Reserve might return to outsize interest-rate increases at its next policy meeting in March after one official suggested the case for such a move at its last meeting had been “compelling.”

Overnight index swaps are now pricing about 29 basis points of tightening for the March meeting following comments from Cleveland Fed President Loretta Mester, who said Thursday that she saw a “compelling economic case” for a half-point rate hike at the central bank’s meeting two weeks ago, despite a decision at that meeting to downshift to quarter-point increases.

One standout trade following Mester’s remarks was a $375,000 bet in put options on Secured Overnight Financing Rate futures — which are closely linked to the Fed’s benchmark — that would net $9 million in profits if officials were to opt for a half-point hike next month, according to a Bloomberg analysis.

Traders also placed bets on higher interest-rate volatility after Mester’s comments, including one $11.5 million straddle position in SOFR options.

The Fed has raised its benchmark rate eight times since March 2022, in a series of moves that included two half-point increases and four hikes of three-quarters of a percentage point.

In the past, the central bank has typically opted for quarter-point changes, and the downshift at this month’s meeting was seen as a return to normal following the most aggressive pace of tightening since the early 1980s.

But economic data released since the Feb. 1 decision — including a hotter-than-expected monthly report on producer prices published on Thursday — have raised the risk of a higher ultimate destination for interest rates than previously thought, as well as a return to outsize increases.

More officials were scheduled to speak later on Thursday, including St. Louis Fed President James Bullard and Fed Governor Lisa Cook.

This article was provided by Bloomberg News.