Fed signals raise in March, however
The Federal Reserve didn’t raise interest rates Wednesday, but it probably will in March. That’s the big takeaway from its first meeting of a year in which it has signaled rates, which have been near zero throughout the pandemic, will go up more than once.
“With inflation well above 2 percent and a strong labor market, the Committee expects it will soon be appropriate to raise the target range for the federal funds rate,” the Federal Open Market Committee wrote in summation of its two-day meeting.
The members signaled they want the Fed to finish tapering down of its monthly bond purchases, a process that could conclude in early March. After that, they could hike interest rates for the first time since December 2018.
“I think there’s quite a bit of room to raise interest rates without threatening the labor market,” Fed chair Jerome Powell said.
The committee also released a guide for how it might not only stop buying bonds but get some off the Fed’s balance sheet.
“The balance sheet is substantially larger than it needs to be,” Powell said. “There’s a substantial amount of shrinkage in the balance sheet to be done. That’s going to take some time. We want that process to be orderly and predictable.”
The economy remains strong despite the omicron COVID wave, the Fed said, but persistent inflation remains enough of a concern to begin raising interest rates soon. The unemployment rate was 3.9% at the end of 2021, approaching pre-pandemic levels of 3.5%. The committee cited strong jobs gains in its decision-making. The Fed next meets March 15 and 16.