Federal Reserve chair Jerome Powell said on Wednesday the Fed was ready to raise interest rates in March and didn’t rule out moving at every meeting to tackle the highest inflation in a generation.
In a separate statement, the Fed said it expects the process of balance-sheet reduction will commence after it has begun raising rates. Powell said no decision was taken at this meeting on the pace of the runoff or when it would start. “The tone of Powell’s press conference is hawkish,” said Neil Dutta, head of economic research at Renaissance Macro Research. “The Fed is going to be much more willing to hike faster in the face of upside inflation surprises than ease in the face of downside employment surprises.”
The vote was unanimous. Philadelphia Fed president Patrick Harker voted as the alternate for the Boston Fed, which is currently without a president, while three vacancies at the Board of Governors reduced the number of voters at this meeting to nine. The Fed’s balance sheet stands at nearly $8.9-trillion, more than double its size before officials began huge asset purchases at the onset of the pandemic to calm market panic.
Despite criticism that it has dragged its feet, the Fed is moving much quicker than it once expected to — prompted by the failure of inflation to fade as anticipated amid robust demand, snarled supply chains and tightening labour markets. As recently as September, central bank officials were split on whether any rate hikes would be warranted in 2022.
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