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Fed Plans March Rate Hike to ‘Cool Off’ Inflation

Fed Plans March Rate Hike to ‘Cool Off’ Inflation

The Federal Reserve said Wednesday that it will “soon” be time to start raising interest rates, a key step in reversing pandemic-era policies that have fueled hiring and growth but also high inflation.

The Fed is expected to lift its benchmark short-term rate from zero as soon as March, when it also plans to phase out monthly bond purchases that have been intended to anchor longer-term rates. The Fed’s most recent statement, which was released following its latest policy meeting, didn’t specifically mention March. But half of the Fed’s policymakers have expressed a willingness to raise rates by then, including some members who have long favored low rates to support hiring.

 

The Fed’s rate hikes will make it more expensive, over time, to borrow for a home, car or business. The Fed’s intent is to temper economic growth and “cool off” inflation without raising unemployment. Chair Jerome Powell said at a news conference that these actions will help prevent high inflation from becoming entrenched and that the central bank can manage the process in a way that prolongs economic growth and keeps unemployment low. “I think there is quite a bit of room to raise interest rates without threatening the labor market,” Powell said.

Powell stressed that the Fed’s “ultimate focus” is on the “real economy.” But he added: “We feel like the communications we have with market participants and the general public are working. Monetary policy works significantly through expectations.”

The central bank’s latest policy statement follows dizzying gyrations in the stock market as investors have been gripped by fear and uncertainty over just how fast and far the Fed will go to reverse its low-rate policies, which have nurtured the economy and the markets for years.

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President Biden said last week that it was “appropriate” for Powell to adjust the Fed’s policies. And congressional Republicans have endorsed Powell’s plans to raise rates, providing the Fed with rare bipartisan support for tightening credit.

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