Federal Reserve Chairman Jerome Powell is telling U.S. lawmakers Wednesday that the U.S. central bank is on track to raise interest rates this month for the first time in three years, because of high inflation, a tight labor market and strong economic demand.
“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 wrote in his prepared remarks that he was scheduled to deliver to the House Financial Services Committee.
Although many traders have already priced in a possible rate hike in March after the central bank hinted at such an outcome after the most recent Federal Open Market Committee (FOMC) in February, questions remain as to the magnitude of any rate hike.
Powell didn’t specify the size of the rate hike he felt would be appropriate..
The Chicago-based CME Group's FedWatch tool shows that futures traders see a 90% chance of a quarter-percentage point hike, as opposed to a half-percentage point, which many thought was very likely just a week ago.
The central bank is concerned about inflation, now at its highest in four decades Powell, however, expects inflation will diminish this year as supply constraints ease and demand moderates because of the shrinking effects of fiscal stimulus and tighter monetary policy.
“We are attentive to the risks of potential further upward pressure on inflation expectations and inflation itself from a number of factors,” he said. “We will use our policy tools as appropriate to prevent higher inflation from becoming entrenched.”
Powell also mentioned Ukraine, saying that the implications of the war for the U.S. economy are “highly uncertain.”
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