The Fed Signals Likely Interest-Rate Hike in March to Curb Inflation

  • In Business
  • 2022-01-26 23:42:31Z
  • By National Review

The Federal Reserve signaled Wednesday that it will likely raise interest rates in March as part of a monetary policy shift to temper an over-heating economy and soaring inflation.

"The committee is of a mind to raise the federal funds rate at the March meeting assuming that the conditions are appropriate for doing so," Federal Reserve chair Jerome Powell said at a press briefing.

With inflation far exceeding the central bank's 2 percent target, the Fed plans to increase the cost of borrowing to slow down economic activity, which will hopefully moderate the price surges across commodities and commercial sectors. Prices are increasing at the fastest pace in almost four decades, with 7 percent annual inflation in December. A supply-chain crisis marked by prolonged shipping delays and production bottlenecks is still ongoing and exacerbating inflationary pressures.

Powell also said that the Fed will start to unload its massive balance sheet by tapering off its large-scale purchases of bonds and other assets, a program which the Fed has sustained for many years and which has injected enormous monetary stimulus into the economy. The Fed currently maintains a portfolio of over $8 trillion worth of U.S. government bonds and mortgage-backed securities (MBS).

He said that inflation "has not gotten better. It has probably gotten a bit worse. . . . To the extent that situation deteriorates further, our policy will have to reflect that," Reuters reported. "This is going to be a year in which we move steadily away from the very highly accommodative monetary policy we put in place to deal with the economic effects of the pandemic."

However, Powell still kept a sense of optimism that the inflation so many consumers are feeling at the gas pump and across a diverse range of products will have an expiration date, possibly in the near term. "Like most forecasters we continue to expect inflation to decline over the course of the year," Powell said Wednesday.

The stock market tumbled in response to Powell's monetary tightening announcement. Low-interest policies often have the effect of fueling financial market booms, which is why warnings of rate hikes rarely bode well for them.

  • Omicron Variant Could Inflame Inflationary Pressures, Fed Chair Warns

  • Inflation Surges to 40-Year High as Consumer Prices Spike in December

  • Fed Chairman: 'Transitory' No Longer Reflects Inflation Reality


More Related News

Record U.S. reverse repos highlight problem of investing excess cash
Record U.S. reverse repos highlight problem of investing excess cash

Demand for the Federal Reserve's reverse repurchase (RRP) facility has surged in the last few weeks, as the U.S. Treasury Department's reduced supply of...

'I go hungry': What parents are sacrificing amid soaring inflation to feed their families

"Food at home" prices have jumped 11%, the largest 12-month rise since 1980, while shelter costs have risen and gas prices have soared to records.

ECB Shouldn
ECB Shouldn't Rule Out Half-Point Rate Hikes, Kazaks Says

(Bloomberg) -- The European Central Bank should consider raising interest rates by half a percentage point if justified by the inflation outlook, Governing...

Asia shares trading lower as inflation worries cloud outlook
Asia shares trading lower as inflation worries cloud outlook
  • US
  • 2022-05-24 05:48:23Z

Asian shares were lower on Tuesday as worries over inflation tempered optimism over President Joe Biden's remark that he was considering reducing U.S...

On The Money - Biden bullish as economy faces threats
On The Money - Biden bullish as economy faces threats

President Biden doesn't see a recession on the way, even though many economists do, and he explains why. We'll also look at how Americans are powering...

Leave a Comment

Your email address will not be published. Required fields are marked with *

Cancel reply


Top News: Business