Fed Chair Jerome Powell: Inflation has persisted longer than we thought

Facing both turbulent financial markets and raging inflation, the Federal Reserve on Wednesday indicated it could soon raise interest rates for the first time in more than three years as part of a broader tightening in historically easy monetary policy.

In a move that came as little surprise, the Fed’s policymaking group said a quarter-percentage point increase to its benchmark short-term borrowing rate is likely forthcoming. It would be the first increase since December 2018.

Chairman Jerome Powell added that the Fed could move on an aggressive path.

“I think there’s quite a bit of room to raise interest rates without threatening the labor market,” Powell said at his post-meeting news conference. After being up strongly earlier, the major stock market averages turned negative shortly following Powell’s pronouncement.

The committee’s statement came in response to inflation running at its hottest level in nearly 40 years. Though the move toward less accommodative policy has been well-telegraphed over the past several weeks, markets in recent days have been remarkably choppy as investors worried that the Fed might tighten policy even more than expected.

The post-meeting statement from the Federal Open Market Committee did not provide a specific time for when the increase will come, though indications are that it could happen as soon as the March meeting. The statement was adopted without dissent.

“With inflation well above 2 percent and a strong labor market, the Committee expects it will soon be
appropriate to raise the target range for the federal funds rate,” the statement said. The Fed does not meet in February.

In addition, the committee noted the central bank’s monthly bond-buying will proceed at just $30 billion in February, indicating that program is expected to end in March as well at the same time that rates increase. Powell said later that the asset purchases indeed likely will end in March.

There were no specific indications Wednesday when the Fed might start to reduce bond holdings that have bloated its balance sheet to nearly $9 trillion.

However, the committee released a statement outlining “principles for reducing the size of the balance sheet.” The statement is prefaced with the notion that the Fed is preparing for “significantly reducing” the level of asset holdings.

That policy sheet noted that the benchmark funds rate is “primary means of adjusting the stance of monetary policy.” The committee further noted that the balance sheet reduction would happen after rate hikes start and would be “in a predictable manner” by adjusting how much of the bank’s proceeds from its bond holdings would be reinvested and how much would be allowed to roll off.

“The Fed’s announcement that it will ‘soon be appropriate’ to raise interest rates is a clear sign that a March rate hike is coming,” noted Michael Pearce, senior U.S. economist at Capital Economics. “The Fed’s plans to begin running down its balance sheet once rates begin to rise suggests an announcement on that could also come as soon as the next meeting, which would be slightly more hawkish than we expected.”

Markets had been anxiously awaiting the Fed’s decision. Stocks added to gains afterwards while government bond yields were mostly higher, though only slightly.

Investors had been expecting the Fed to tee up the first of multiple rate hikes, and in fact are pricing in a more aggressive schedule this year than FOMC officials indicated in their December outlook. At that time, the committee penciled in three 25 basis point moves this year, while the market is pricing in four hikes, according to the CME’s FedWatch tool that computes the probabilities through the fed funds futures market.

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[peterlaval]

IMO, the main cause of the tension between China AND India is mostly related to the change of India strategic policy under Modi, namely colludes with the West, aka Quad. There are also open discussion within the India elites of hurting Chinese economic system at the Andaman Sea. This is CLEARLY a provocation. China is obviously reacting to it, causing tension at the boarder to raise the unsatisfactory awareness. If you can recall before Modi, relation between China and India were much better than today with Modi. Modi is the main reason for this rising tension.

[gupi]

U.S should replace the Fed leader, who is missing the timing of the rate hike.
Inflation continues to rise and the Fed is responsible for judging it as 'temporary'.

[peterlaval]

I am not sure that the Fed raises interest rate could solve the inflation in this time. It's mainly the root causes are: Covid persistency that cause supply chain issue, reduce productivity that drive up inflation. The Fed can raise the interest rate to the sky. It won't solve Covid persistency and it won't stop low productivity, period. Second, the barrel of oil has risen substantially and it raises the price for everything living thing in this country. IMO, it's much more effective to deal with the oil supply issue than using the rate to crush it, because the rate hike will crush the economy as well, especially, the Fed and the Biden administration just spent Trillion of dollars of our dollars to pop it up. It's contradicting. Third, since Trump dumbly raise the Tariff, it has been driving price up in everything. Raising interest rate won't solve anything. In fact, when the business has to pay more for their loans, have an educate guess, where they will pass those costs to. The Fed has done many great jobs in the past, but this time, I believe that they are heading in the wrong path.

[a.a.]

PLEASE READ THIS CAREFULLY: If the Fed’s rate is raised more than 0.25-0.50, the US government must allocate almost one trillion dollars for bond interest rate payments. I see several-rate rises as empty threats. While the Fed’s rate is currently very low, the US government already pays almost half-trillion dollars interest payments to bondholders, which is equivalent to the total health annual budget. Now if they double the Fed’s rate, imagine the US government has to sacrifice education, defense, social securities, infrastructure, and health in the budget for interest payments for bondholders. Please check the US budget yourself. Don’t be fooled by this impossibility. The Fed wants the fear to suppress the market instead and do the dirty work.

[jaym]

Job of FED is to transfer wealth from the dirt poor to the already rich without citizen rebellion. The original $ now buys less than 5 cents.

[ivang]

People are negotiating for higher wages with their feet, inflation has affected their rent, food, transportation. i.e. unlivable wages. Wages may be rising, real wages are not - it's not progress. What's scary is that wages are starting to chase inflation. that is dangerous.

[cheaserceaser]

Jerome Powell stated repeatedly inflation is transitory. What happened?

[saz]

"My friend, debt is the very essence of fiat. As debt defaults, fiat is destroyed. This is where all these deflationists get their direction. Not seeing that hyperinflation is the process of saving debt at all costs, even buying it outright for cash. Deflation is impossible in today's dollar terms because policy will allow the printing of cash, if necessary, to cover every last bit of debt and dumping it on your front lawn! (smile) Worthless dollars, of course, but no deflation in dollar terms! (bigger smile)" - FOA

[usa]

FED MISTAKE!!! Increase our salary 40% to fight super higher high all goods and services!!!

[griffinsutich]

My fellow patriots! These people are the enemy

[mindpuzzle]

This good it means we have moved beyond the under consumption period of the past decade and have moved into the excess consumption phase. This should help with capital discipline to make companies more efficient. It'll be painful but it is necessary.

[titaniumsandwedge]

If Trump were Fed Head, he would give this answer: "What a dumb question! You should be ashamed of yourself and be fired from whatever wretched news agency you work for."

[danglinghenry]

Bought maximum amount of I bonds in December and January not a bad rate at 7.12%

[SmashKing]

.10 in march .10 in august .10 in December. This is the perfect scale to bring us steadily backu up and balance the fed books 📚 this is so easy if he would of communicated soundly this plan stocks would be ripping high! Powell please come back with a serious plan why even have this press conference leaving more fear in the economy. I have a hard time not understanding how he doesn't have an understanding on what should be done

[Gilmourist]

still buying billions in buying billions in treasuries.

[Skeptik]

The FED is in the dollar devaluation business aka inflation and real inflation is much higher than "official" published numbers. Inflation is the handiwork of the FED and our circumstance is by design rather than happenstance. Adage: Nothing is finance and politics just happens.

[stlouisix]

I was 100% certain that the CPI, PPI & General Goods🤚& services price increases would very, exceedingly, dreadfully, rapidly increase because central bankers created historically-high levels of currency inflation and credit (through commercial banks)!
It was obvious to anyone who's studied economics and has commonsense👍🧠

[stevencole]

The pandemic has probably lasted longer than what most thought and the pandemic goes hand in hand with inflation