The Federal Reserve’s quarter-point hike in its key rate, which it had pinned near zero since the pandemic recession struck two years ago, marks the start of its effort to curb the high inflation that has followed the recovery from the recession.
The Federal Reserve on Wednesday will launch one of the most difficult tasks a central bank can attempt: Raise borrowing costs enough to slow growth and tame high inflation, but not so much as to topple the economy into recession.
Investors have ramped up expectations for an aggressive Fed posture in the face of the highest inflation in four decades. But the economists say the outlook has become muted by uncertainty over Ukraine, sanctions and surging commodities prices.
Chairman Jerome Powell said Wednesday that he supports a traditional quarter-point increase in the Federal Reserve’s benchmark short-term interest rate when the Fed meets later this month, rather than a larger increase that some of its policymakers have proposed.
The debate over how quickly to raise interest rates is being closely watched by financial markets and also could have an impact on the broader economy.
Federal Reserve Governor Michelle Bowman said Monday that she was open to lifting interest rates by more than the traditional quarter-point at the central bank’s next meeting in March.
Fed officials are expected to raise their benchmark short-term rate several times this year beginning in March. But economists have increasingly suggested that the Fed has waited too long to unleash its inflation-fighting tools.
A worsening inflation picture has touched off a range of opinions from the Federal Reserve’s policymakers about just how fast they should raise interest rates.
With high inflation squeezing consumers and businesses and unemployment falling steadily, the Fed also said it would phase out its monthly bond purchases, which have been intended to lower longer-term rates, in March.
The Federal Reserve said its 12 regional banks found that the economy was continuing to grow, but many regions reported a sudden pullback in spending on leisure travel, hotels and restaurants because of the rapid spread of the omicron variant of the coronavirus.
Fed officials now expect to raise short-term interest rates three times this year, a sharp shift from September, when they were divided over doing it even once. Economists increasingly expect them to raise rates at least four times in 2022.
On Wednesday, the government is expected to report that consumer prices jumped 7.1% over the past 12 months, which would be the steepest such increase in decades.
The Fed’s policy change does carry risks. Raising borrowing costs too fast could stifle consumer and business spending. That, in turn, would weaken the economy and likely raise unemployment.
We are very pleased that President Biden plans to reappoint Jerome Powell as chairman of the Federal Reserve Bank. With all the economic uncertainty from the COVID omicron variant, rising inflation, supply-chain struggles and fiscal imbalances, this is not the time to rock the boat at the Fed with a new and untried leader.
Chairman Jerome Powell said Tuesday that the Federal Reserve will consider acting more quickly to dial back its ultra-low-interest rate policies to counter higher inflation. His remarks quickly accelerated losses on Wall Street.
Federal Reserve Chair Jerome Powell says that the appearance of a new COVID-19 variant could slow the economy and hiring.
By picking Jerome Powell to stay on as chair of the powerful Federal Reserve, President Joe Biden is trying to navigate hazardous crosscurrents between economic and political forces.
In a second term, to begin in February, Jerome Powell faces a difficult and high-risk balancing act: Inflation has reached a three-decade high, causing hardships for millions of families, clouding the recovery and undercutting the Fed’s mandate to keep prices stable.
Their opposition comes as President Joe Biden is expected to announce within days whom he will choose for the nation’s most powerful economic position.
Federal Reserve Chair Jerome Powell said the Fed was sticking by its bedrock economic forecast. Yet, the nation’s leading economic figure acknowledged that it isn’t at all clear when or even whether things will play out the way he and other Fed officials hope.
