The Federal Reserve building is seen before the Federal Reserve Board is expected to signal plans to raise interest rates in March as it focuses on fighting inflation in Washington, United States, January 26, 2022. REUTERS/Joshua Roberts/Files
March 16, 2022
By Howard Schneider and Ann Sapphire
WASHINGTON (Reuters) – The Federal Reserve hiked interest rates by a quarter of a percentage point on Wednesday, unveiling an aggressive plan to bring borrowing costs down to restrictive levels by next year amid concerns over high inflation and the war in Ukraine the risks outweighed the coronavirus pandemic.
The US Federal Reserve surprisingly forecast a quarter-point rate hike at each of its six remaining policy meetings this year, which would bring its federal funds rate benchmark to a range of between 1.75% and 2.00% by the end of 2022. It is forecast said it will rise further to 2.80% by the end of next year, which is above the 2.40% level that officials now believe would slow the economy.
Fed Chair Jerome Powell said after the conclusion of the latest two-day policy meeting the economy was strong and officials would hike rates more aggressively at future meetings if needed to control inflation.
“We think about every meeting being a live meeting,” Powell said in a news conference. “We will look at evolving conditions and if we conclude it would be appropriate to move faster to remove shelters then we will do so.”
Powell said the US economy is strong and should “thrive” even in an environment where borrowing costs are rising and stimulus is withdrawn. “It’s clearly time to hike interest rates and start shrinking balance sheets,” he said.
However, an economic slowdown may already be underway. Fed policymakers cut their GDP growth estimate for 2022 to 2.8% from the 4% forecast in December as they began to price in new risks to the global economy.
“Russia’s invasion of Ukraine is causing enormous human and economic hardship. The impact on the US economy is highly uncertain, but in the short term the invasion and related events are likely to create additional upward pressure on inflation and weigh on economic activity,” the Fed said in its policy statement.
The statement, which dropped the long-standing direct reference to the coronavirus as the country’s most direct economic risk, marked the end of the Fed’s all-out fight against the pandemic as it hiked interest rates and promised “ongoing increases”. to contain the highest inflation rates in 40 years.
The rate path revealed in new forecasts from policymakers is tougher than expected, reflecting the Fed’s concerns about inflation, which has been accelerating and threatening to become more stubborn than expected, and jeopardizing the central bank’s hopes of an easy exit from emergency policy set up to combat the consequences of the pandemic.
Major US stock indexes briefly pared gains after the release of the statement and forecasts before rebounding, with the S&P 500 index most recently up about 1.1% on the day.
The benchmark 10-year Treasury yield briefly rose to its highest level since May 2019, while the 2-year Treasury yield, which better reflects market views on the direction of Fed policy, briefly broke above 2.0% for the first time surpassed since May 2019. Dollar traded slightly lower.
Even with tighter rate hikes now forecast, the Fed expects inflation to remain more than double its 2% target this year, falling to 2.7% in 2023 and 2.3% in 2024. The unemployment rate is expected to fall to 3.5% this year and remain at that level next year, but is expected to rise slightly to 3.6% in 2024.
The new statement said the Fed expects to start reducing its nearly $9 trillion balance sheet “at an upcoming meeting.”
St. Louis Fed President James Bullard was the only policymaker to disagree with Wednesday’s policy decision.
(Reporting by Howard Schneider; Editing by Paul Simao)
https://www.oann.com/all-systems-go-for-feds-liftoff-of-interest-rates/?utm_source=rss&utm_medium=rss&utm_campaign=all-systems-go-for-feds-liftoff-of-interest-rates The Fed is raising interest rates, signaling an aggressive fight against inflation