Powell backs March liftoff, won't rule out hike every meeting

Federal Reserve Chair Jerome Powell said the central bank was ready to hike interest rates in March and didn’t rule out moving at every meeting to tackle the highest inflation in a generation.

“The committee is of a mind to raise the Fed funds rate at the March meeting” if conditions are there to do so, Powell told a virtual press conference on Wednesday, while noting that officials have not made any decisions about the path of policy because it needs to be “nimble.”

He was speaking after the Federal Open Market Committee concluded its two-day meeting with a statement that declared “it will soon be appropriate to raise the target range for the federal funds rate,” citing inflation well above its 2% target and a strong job market. 

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 hawkish pivot, against a backdrop of turmoil in stocks, comes amid consumer inflation readings that have repeatedly surprised and hit 7% — the most since the 1980s — and a tight labor market that’s pushed unemployment down faster than anticipated to almost its prepandemic level.

The yield on 10-year Treasury notes rose sharply as Powell spoke while stocks fell, and the dollar pushed higher.

“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.”

A rate hike would be the central bank’s first since 2018, with many analysts forecasting a quarter-point increase in March to be followed by three more this year and additional moves beyond. Critics say the Fed has been too slow to act and is now behind the curve in tackling inflation, though key market gauges don’t back that view. Even some Fed officials have publicly discussed if they should raise rates more this year than forecast.

“We will need to be nimble so that we can respond to the full range of plausible outcomes,” Powell said. “We will remain attentive to risks, including the risk that high inflation is more persistent than expected, and are prepared to respond as appropriate.”

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.

Officials held the target range for their benchmark policy rate unchanged at zero to 0.25% as expected.

They also said they will conclude asset purchases on schedule, leaving them on track to end in “early March.”

The Fed’s balance sheet stands at nearly $8.9 trillion, more than double its size before officials began massive asset purchases at the onset of the pandemic to calm market panic.