US Federal Reserve indicates increase in interest rates as inflation rises

Fed chair Jerome Powell said the central bank would make a decision on the rate raise in its March meeting

The Federal Reserve is preparing to raise rates in March for the first time since the coronavirus pandemic struck the US as it attempts to curb rising prices.

After its latest two-day meeting the central bank announced that it would leave interest rates close to zero for now but signaled it was preparing to raise them at its next meeting.

At a press conference, the Fed chair, Jerome Powell, said the central bank would continue to monitor the course of the pandemic, inflation and unemployment but gave his clearest signal yet that the US’s historically low interest rates would start to rise soon.

“I would say the committee is of a mind to raise the federal funds rate at the March meeting assuming that conditions are appropriate for doing so,” said Powell. “The economy no longer needs sustained monetary policy support,” he said.

The central bank cut rates to close to zero when the coronavirus pandemic hit the US in March 2020 and began pumping money into the economy by buying financial assets in order to stave off a potential financial collapse. At this week’s meeting, the Fed committee approved one final round of asset purchases, which will bring that stimulus program to a conclusion by March.

The Fed has a dual mandate: to maximize employment and to keep prices stable.
In recent months inflation has risen sharply to an annual rate of 7% and the unemployment rate has fallen back to 3.9%, close to pre-pandemic levels. It has signaled for months that rate rises are coming in order to tamp down price rises and Powell said there was “quite a bit of room to raise interest rates without threatening the labor market”.

But the end of the Fed’s easy money policy has rattled investors. The announcement follows days of wild swings on the stock markets where investors have worried about the speed with which the Fed will end its era of easy money and the impact on the global economy from rising tensions between Russia and Ukraine.

US stock markets plummeted on Monday and Tuesday only to regain most of their losses. Nevertheless, by Tuesday the S&P 500 had recorded its worst-ever losses for the start of a year with the once hot tech sector contributing most of those losses. US stock markets recovered ground on Wednesday but fell as Powell outlined the Fed’s plans.


Dominic Rushe in New York

The GuardianTramp

Related Content

Article image
Fed announces smallest interest hike in a year as inflation ‘eases somewhat’
Quarter-point increase to a range of 4.5% to 4.75% signals a slowdown in Fed’s fight against soaring inflation

Dominic Rushe in New York

01, Feb, 2023 @7:40 PM

Article image
US Federal Reserve votes to increase interest rates to 16-year high
Rise in benchmark interest rate is 10th hike since March 2022, when the Fed started its rapid inflation-fighting campaign

Lauren Aratani in New York

03, May, 2023 @6:01 PM

Article image
Federal Reserve warns of ‘pain’ ahead as inflation surges
The US central bank is expected to announce a sharp rise in interest rates on Wednesday in an attempt to tackle the cost of living crisis

Dominic Rushe

21, Sep, 2022 @6:00 AM

Article image
Federal Reserve announces biggest interest rate hike since 1994
Fed confirms 0.75 percentage-point increase as Americans across country hit hard by rising prices and shortages of key items

Dominic Rushe in New York

15, Jun, 2022 @10:33 PM

Article image
Tough action on interest rates in the US. But how rattled is the US Federal Reserve?
Wall Street braces for rises in borrowing costs in July and September as 8.6% inflation spurs on central bank

Larry Elliott Economics editor

15, Jun, 2022 @7:00 PM

Article image
Federal Reserve cuts US interest rates for third time this year
But central bank’s reluctance to further reduce borrowing costs could rile Donald Trump

Larry Elliott

30, Oct, 2019 @7:55 PM

Article image
Federal Reserve cuts interest rates, and earns another blast from Trump - as it happened
The US Fed votes to cut interest rates for the second time this year, but president Trump wants more

Graeme Wearden

18, Sep, 2019 @8:35 PM

Article image
Federal Reserve raises interest rates despite pressure from Trump
Fed said rates will rise a quarter of a percentage point to 2.25% to 2.5% but it is carefully watching ‘event risks’, including Brexit

Dominic Rushe in New York

19, Dec, 2018 @11:16 PM

Article image
US Federal Reserve winding down Covid stimulus
Officials announces tapering of programme amid fears central bank may raise rates to curb inflation

Dominic Rushe in New York

03, Nov, 2021 @6:14 PM

Article image
Janet Yellen sets interest rates one last time. How will history rate her?
The Fed chair has set the bar high for her successor, a tenure defined by five major achievements

Richard Partington

30, Jan, 2018 @7:13 AM