Fed's Powell to propose 25 bps rate increase at March meeting
The Fed chair also said the central bank would start trimming its balance sheet after rate hikes begin
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Federal Reserve Chairman Jerome Powell told Congress on Wednesday that he plans on proposing a 25 basis point interest rate hike at the central bank's upcoming March meeting, as the U.S. economy battles soaring inflation not seen in four decades.
Federal Reserve Board Chair Jerome Powell testifies about 'monetary policy and the state of the economy' before the House Financial Services Committee on March 02, 2022 in Washington, DC. (Photo by Win McNamee/Getty Images) (Photo by Win McNamee/Getty Images / Getty Images)
"With inflation well above 2% and a strong labor market, we expect it will be appropriate to raise the target range for the federal funds rate at our meeting later this month," Powell testified before the House Financial Services Committee, saying that he is "inclined to propose and support a 25 basis point rate hike" at the Fed's March 15-16 gathering.
Powell added that the central bank is "prepared to move more aggressively by raising the federal funds rate by more than 25 basis points" at future meetings.
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The Fed chair also said he expects to "make good progress toward an agreement on a plan to shrink the balance sheet," but that it would not be finalized this month.
Jerome Powell, chairman of the U.S. Federal Reserve, speaks during a Senate Banking, Housing, and Urban Affairs Committee confirmation hearing in Washington, D.C., U.S., on Tuesday, Jan. 11, 2022. (Photographer: Brendan Smialowski/AFP/Bloomberg via Getty Images / Getty Images)
Federal Reserve officials have signaled for months that interest rate increases were coming, and Powell said Tuesday that before Russia invaded Ukraine he would have expected a series of increases in the near future but that the war could now have an impact on the central bank's actions.
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"The near-term effects on the U.S. economy of the invasion of Ukraine, the ongoing war, the sanctions, and of events to come, remain highly uncertain," Powell said in his prepared remarks. "Making appropriate monetary policy in this environment requires a recognition that the economy evolves in unexpected ways. We will need to be nimble in responding to incoming data and the evolving outlook."
Jerome Powell, chairman of the U.S. Federal Reserve, during a Senate Banking, Housing and Urban Affairs Committee hearing in Washington, D.C., U.S., on Tuesday, Nov. 30, 2021. (Al Drago/Bloomberg via Getty Images / Getty Images)
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The Fed has left rates unchanged since March 2020, but with inflation hitting a 40-year high last month at 7.5% compared to the prior year, the central bank has faced increasing pressure to implement rate hikes.