For the first time since the start of the pandemic, the Federal Reserve said it’ll soon be ready to raise its benchmark interest rate, which has been sitting near-zero for nearly two years. When that happens, it’ll be the first rate increase since 2018.
The news broke Wednesday afternoon after the committee’s 2-day policy meeting. Since the Fed does not meet in February, indicators point to a possible rate hike as soon as March.
“I think there’s quite a bit of room to raise interest rates without threatening the labor market,” Federal Reserve Chair Jerome Powell said in an afternoon press conference.
The decision comes as the country deals with the hottest inflation in 40 years, fueled in part by supply chain struggles.
“There are multiple forces which should be working over course of year for inflation to come down,” Powell said, speaking to supply chain issues. “We do realize the timing and pace of that are highly uncertain and that inflation has persisted longer than we thought, and of course, we’re prepared to use our tools to assure that higher inflation does not become entrenched.”
After dramatic measures to stabilize the economy during the pandemic, the Fed said the economy is strong enough to continue dialing back accommodating monetary policies, with inflation at 7% and unemployment at 3.9%.
That includes ending asset purchases in early March, according to Powell. But in a step beyond tapering, the committee announced it could start shrinking its balance sheet sometime after raising interest rates, outlining policies for a predictable, methodical withdrawal when the time comes.
The stock market turned negative during Powell’s press conference, erasing gains made earlier in the trading day.
Powell, for his part, is still waiting for the Senate to confirm him for another four years as Fed Chair. He testified earlier this month and his current term ends the first week of February.