Fed to Raise Interest Rates a Quarter Percentage Point, Doesn't Say When
New York, NY, March 15, 2022-Federal Reserve Chairman Jerome Powell took much of the suspense out of this week’s policy meeting when he said recently he would propose raising interest rates by a quarter percentage point from near zero, which would be the first increase since 2018, reports the Wall Street Journal.
“The harder part of Fed officials’ deliberations might be agreeing on how to signal the likely path of rate increases in the months to follow. Worsening inflation, already at a 40-year high, could force them to accelerate the process, but they have signaled they are trying to move carefully to avoid triggering a sharp correction in financial markets.
“Mr. Powell told lawmakers earlier this month that, because of the market upheaval triggered by the war in Ukraine, he wanted to avoid adding to uncertainty and to start with a traditional, quarter-point increase rather than opt for a larger, half-percentage-point move. That larger step has been advocated by a couple of his colleagues in recent weeks and some financial-market commentators who say the Fed needs to remove its stimulus faster to demonstrate its seriousness to tame inflation.
“Mr. Powell earlier this month laid the groundwork for the possibility of raising rates by 0.50 percentage point, or 50 basis points, later this year. He also suggested the Fed might need to eventually raise rates to a level designed to deliberately slow economic growth.
“Escalating sanctions against Moscow as a result of Russia’s invasion of Ukraine are driving up energy and commodity prices while aggravating supply-chain bottlenecks. New pandemic-driven lockdowns in Chinese manufacturing hubs are also set to exacerbate those supply imbalances.
“‘If not for the geopolitical events, 50 basis points would certainly be on the table at this meeting,’ said Nathan Sheets, chief global economist at Citi. ‘The one thing Powell can do is to hold out the prospect of 50 down the road.’”