Federal Reserve raises rates in March in high inflation and “very tight” employment markets

Federal Reserve Chair Jerome Powell said Wednesday that the central bank is on track to raise interest rates at its next policy meeting two weeks later. Note that the war in Ukraine infused high uncertainty into the economic outlook.

Powell spoke in testimony in front of the House Financial Services Commission during the semi-annual release. Monetary policy report He told Congress that recent geopolitical tensions associated with Russia’s invasion of Ukraine are a “source of uncertainty” in commodity and financial markets.

Powell was asked about expectations for monetary policy direction at the March meeting of the Fed’s Federal Open Market Committee (FOMC), acknowledging the growing uncertainty of Russia’s offensive to Ukraine. Confirmed the rate hike plan. ..

“Obviously, we’re not autopiloting. At times like this, all we have to do is lay out our principles and then whatever clarity we have. It’s about implementing those policies carefully and agilely, “Powell said.

Entering the March meeting, market expectations said the FOMC had set a rate hike for the first of a series of rate hikes, and Powell expected “significant progress” in adjusting the Fed’s balance sheet. was.

“The question now is how the reaction from countries around the world, including the invasion of Ukraine, the ongoing war and sanctions, has changed that expectation,” he continued.

Powell said it was premature to state clearly how the conflict and its response would affect the FOMC’s decision to take place March 15-16, but hiking plans are basic. It was confirmed that it remained intact.

“For now, I think we will proceed cautiously in line with that plan,” he said, adding a warning that the economic impact of the Ukrainian conflict is “very uncertain.”

Federal fund futures contracts, which reflect market expectations for interest rate channels, have a 5% chance of raising 50 basis points and a 95% chance of raising 25 basis points in two weeks.

The Ukrainian crisis has already pushed up energy prices, Powell predicts that energy prices will be reflected in future inflation measurements and in the cooling effect of consumer spending “probably due to lower risk sentiment.” Said that.

“I don’t know how big and lasting these effects are. It just depends on what’s coming,” he added.

Powell also commented on the possibility of rate hikes when commenting more generally on inflation, saying he saw clear signs of the need to dial back to the Fed’s monetary easing policy.

“What we are facing now is an increase in the level of demand in the face of supply constraints, and it is the conflict between these two that is causing inflation,” Powell said.

“Therefore, there is an important task to move from these highly stimulating monetary policy settings to more normal levels of interest rates and perhaps tougher levels when inflation is very high. That’s the Commission’s plan. “He said.

of Prepared remarks As testimony, Powell described the labor market as “very tight,” the increase in employment in January as “strong,” and the labor supply as “suppressed.”

“Employers are struggling to fill jobs, an unprecedented number of workers are quitting new jobs, and wages are rising at the fastest pace in years,” he said.

Powell described the recent slowdown in the economy due to Omicron as “easy” and the financial condition of American households and businesses as “healthy.”

Inflation “much better” than the Fed’s 2% target, pervading a wider range of goods and services, and imposing “serious difficulties” on Americans, especially low-income earners. ..

In 2021, the US economy expanded at a pace of 5.5% and salary employment increased by 6.7 million.

The Federal Reserve’s recommended inflation index, the so-called consumer spending price index, rose 5.8% in the 12 months to December, while the index excluding food and energy, the so-called core inflation, was 4.9%. It has risen. Both inflations were the highest in about 40 years.

Tom Ojimek


Tom Ozimek has a broad background in journalism, deposit insurance, marketing and communication, and adult education. The best writing advice he has ever heard is from Roy Peter Clark.