Jan 26, 2022 - Economy

Fed: Rate hikes are near

Federal Reserve headquarters building

The Federal Reserve's headquarters building. Photo: Anna Moneymaker/Getty Images

The Federal Reserve is on track to raise its main target interest rate in mid-March, as Chair Jerome Powell pledged to be "humble and nimble" in adapting policy to a fast-changing economy.

Why it matters: Fed leaders are looking to choke off inflation by raising interest rates in the near future, but keeping its options open for how fast and far the effort will go.

Driving the news: The policy-setting Federal Open Market Committee said in a statement that it "expects it will soon be appropriate to raise the target range for the federal funds rate," and Powell did not rule out a more aggressive campaign of monetary tightening than has been seen in years.

The big picture: Powell repeatedly declined opportunities to lay out a more precise prediction for how much and on what time horizon rate this cycle of rate increases will occur.

  • In particular, he did not rule out raising interest rates at consecutive policy meetings (which the Fed hasn't done since 2006) or raising more than a quarter percentage point in a single meeting (not since 2000).
  • "We need to be quite adaptable in our understanding of this," he told reporters.

The Fed also appears on track to begin reducing the size of its $8.9 trillion balance sheet this summer, essentially starting to undo the quantitative easing policies that have fueled financial markets and left the central bank with a massive bond portfolio.

Market reaction: The stock market fell and bond yields rose during Powell's news conference, as Powell kept scenarios that would imply significantly tighter money on the table.

The Omicron effect: The statement said that "the sectors most adversely affected by the pandemic have improved in recent months but are being affected by the recent sharp rises in COVID-19 cases."

The decision was unanimous. There were no dissents at the Fed's first policy meeting of 2022, even as some relatively hawkish voices have a policy vote this year, including James Bullard of the St. Louis Fed, Esther George of the Kansas City Fed, and Loretta Mester of the Cleveland Fed.

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