The anti-inflation Fed will announce a rise in the interest rate in March, Reuters reported

By Howard Schneider

WASHINGTON (Reuters) – The Federal Reserve is expected to announce interest rate hikes in March, as it focuses on the fight against inflation and, at least for now, ignores the economic risks posed by the ongoing coronary pandemic due to market volatility. , and Western fears of the Russian invasion of Ukraine.

The policy decision, which will be released after a two-day EST (1900 GMT) two-day meeting, will not commit the U.S. central bank to any particular course of action when its rate-setting committee meets again within seven weeks.

But unless there is a significant change in the evolution of the economy, the Fed is likely to begin removing pandemic support at its March meeting, saying that combining higher interest rates and lower central bank presence in financial markets will slow the pace. price increases.

Chart: Rising inflation at COVID Rising inflation at COVID, https://graphics.reuters.com/USA-FED/INFLATION/akvezawxopr/chart.png Pre-policy meetings are often used to telegraph upcoming meetings.

With “very high” US inflation and an unemployment rate of just 3.9%, Fed Chairman Jerome Powell and his colleagues “will talk about the economy without apocalyptic inflation and prepare the ground for a March rise in interest rates,” Cornerstone Macro economist. Roberto Perli wrote in a note before the decision. It is also likely that central banks will continue to discuss how and when to reduce the massive holdings of Treasury bonds and mortgage-backed securities as another way to tighten monetary policy.

Powell will begin a press conference half an hour after the statement is released. Fed officials will not release updated economic and interest rate forecasts on Wednesday, so it is up to Powell to clarify how the central bank’s vision is to match investors who expect a stronger fight against inflation and have sold U.S. stocks and sold U.S. stocks. as a result, long-term interest rates have started to rise this month.

The Fed is expected to keep its benchmark interest rate close to zero on Wednesday.

Graph: How fast will the Fed go ?, https://graphics.reuters.com/USA-FED/gkplgbrkjvb/chart.png NO MORE TRANSITORY NO

Wall Street trading has been volatile this week and is down about 8% this year. This, along with rising market rates for things like home mortgages, will force Powell to walk the line between a desire to keep the economic recovery on track and at the same time assert that inflation control is now the Fed’s top priority.

“It won’t be nervous because inflation has been high for a long time,” Perli wrote, “but it will leave the rate open higher than expected, nor will it rise by more than a quarter of a percentage point,” he said. , of course”.

These risks have become more pronounced in the last five months. Powell used a high-level speech in August to explain why high inflation was thought to be “transient,” but since then economic data has shown the opposite https://graphics.reuters.com/USA-FED/INFLATION/zdpxoqkrkvx/index. html.

Consumer inflation is rising at 7% a year, the fastest pace since the early 1980s, when the White House described the problem as an economic risk and, according to President Joe Biden’s Democratic Party, a political risk.

New data released earlier this week is likely to show that the resurgent pandemic slowed the pace of economic growth in late 2021 and saw the Fed closely monitor inflation measures well above its 2% target.

Little rest is seen. If so, international risk is likely to worsen. China’s stringent policy to block coronaviruses means global supply chains may be slower to return to normal, and a military conflict between Russia and Ukraine could also add to inflation.

“The effects on the energy market. , said on Tuesday after the IMF dropped its economic growth forecast for 2022 https://www.reuters.com/markets/us/imf-cuts-growth-forecasts-us-china-world-omicron-spreads-2022-01-25 US, For Chinese and world economies.

“So in terms of inflation numbers, inflation can certainly be much higher in the long run,” he said.