Fed chief supports interest rate hike in March despite Russia-Ukraine war

By Beatriz Pascual Macias

Washington, Mar 2 (EFE).- The chairman of the United States Federal Reserve said Wednesday he will support an interest rate hike of 25 basis points at this month’s meeting of the central bank’s monetary policy-making body.

Jerome Powell made those remarks to the US House of Representatives’ Committee on Financial Services, saying he continues to support tighter credit conditions despite Russia’s invasion of Ukraine.

“(I’m) inclined to propose and support a 25-basis-point rate hike” at the Federal Open Market Committee’s next meeting on March 15-16, the Fed chief said.

The US central bank’s benchmark federal-funds rate has been kept at a target range of between zero and 0.25 percent since the onset of the pandemic in March 2020.

But the FOMC said at its most recent meeting in late January that it expects an increase will soon be appropriate considering the US’s strong labor market and an inflation rate that is well above the Fed’s 2 percent target.

An increase of 25 basis points would mean a new federal-funds target range of between 0.25 percent and 0.5 percent.

Even so, Powell acknowledged that Russia’s invasion of Ukraine will have repercussions that are “highly uncertain” for the US economy.

The central bank typically avoids making monetary policy decisions during periods of uncertainty due to fears of exacerbating the economic situation, but Powell said that in his view the US’s inflation and labor market realities make an interest rate hike necessary in the short term.

US consumer prices rose at an annual rate of 7.5 percent in January, the fastest pace in decades and far above the Fed’s 2 percent target.

Powell told the committee that in determining the right monetary policy in this environment the Fed needs to recognize the economy is evolving unexpectedly and “be nimble in responding to incoming data and the evolving outlook.”

He said the Fed is likely to carry out a series of 25-basis-point interest rate hikes in the coming months but stressed that it could take more aggressive action if inflation persists.

The Fed has carried out quarter-percentage-point increases in the federal-funds rate since 2000, but Powell’s remarks leave open the possibility of bigger increases in the coming months.

If a rate hike is approved at the March 15-16 meeting, it will be the first carried out by the central bank since 2018.

In this month’s meeting, Powell also is expected to address the Fed’s previously announced plans to wind down a monthly bond-buying stimulus program that had been accelerated during the pandemic to offset the impact of the economic shutdown.

The central bank had previously said its intention was to bring new purchases of Treasury and mortgage securities to a halt in March, although Powell did not offer further details on Wednesday.

His remarks show the difficulties the Fed is facing in responding to inflation in the wake of Russia’s invasion of Ukraine, an action that prompted the US, the European Union and their allies to impose severe sanctions on Russia’s economy.

Inflation in the US could rise further due to supply chain interruptions and energy price hikes, particularly considering Russia’s status as the world’s third-largest oil producer and second largest natural gas producer. EFE

bpm/mc