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The Federal Reserve of the United States suggested on Wednesday that it is prepared to raise interest rates as soon as March to confront rising inflation as it leaves the ultra-loose monetary policy set at the outbreak’s inception.

The Fed stated in a statement after a two-day meeting that “supply and demand mismatches connected to the epidemic and the reopening of the economy have continued to contribute to rising levels of inflation.”

“With inflation well above 2% and a healthy labor market, the Committee anticipates it will be appropriate to raise the federal funds rate target range soon,” the Fed continued, referring to the Fed’s policy-making committee, the Federal Open Market Committee (FOMC).

For the next two years, the central bank has promised to hold the federal funds rate near zero, which is a record low.

However, due to rising inflationary pressures, many Fed members have stated in recent weeks that they would be fine with a rate hike in March.

According to the US Labor Department, the consumer price index increased 7% from a year ago in December, the biggest 12-month gain since June 1982.

Because of the impressive gains in the labor market and increased inflation, Fed Chair Jerome Powell said the U.S. economy “no longer requires sustained high levels of monetary policy assistance” during a virtual press conference Wednesday afternoon.

“I would say the committee is of the mind to raise the federal funds rate at the March meeting given that conditions are favorable for doing so,” Powell said, adding that most Fed members believe inflation risks are “remain to the upside.”

“We’ll utilize our tools to support the economy and a healthy labor market, as well as to prevent higher inflation from getting entrenched, and we’ll keep a close eye on the economy to see if it’s progressing in accordance with expectations,” he said.

The central bank also chose to keep slowing down the monthly pace of its net asset purchases, which will finish in early March.

Meanwhile, officials at the Federal Reserve addressed the principles for decreasing the central bank’s almost $9 trillion dollar balance sheet, which more than doubled during the pandemic, but no particular decisions have been taken.

The FOMC made plain its plan to both hike rates and reduce the size of the balance sheet in 2022, according to Diane Swonk, the chief economist at large accounting firm Grant Thornton.

“The decision to signal rate hikes and a reduction in the balance sheet following a liftoff in rates was unanimous,” Swonk wrote in an analysis on Wednesday, predicting that the Fed will start reducing its massive balance sheet in June.

“As the balance sheet shrinks, the goal will be to put it on the remote control. The Fed wants balance sheet decreases to be predictable, like watching paint dry “she stated

The Fed’s post-meeting statement, according to Joseph Brusuelas, chief economist at accounting and consulting firm RSM US LLP, implies that policy normalization will soon be in full gear, with a rate hike in March virtually certainly followed by three to four more raises this year.

“While rate hikes take about six months to reach the real economy, expectations have already resulted in a de facto tightening of financial conditions and the start of what will most likely be two to three years of policy normalization,” Brusuelas said.

Following a rate hike in March, Wells Fargo Securities senior economist Jay Bryson predicted that the Fed will raise rates 25 basis points per quarter until the third quarter of 2023, bringing the federal funds rate to 1.75 percent to 2.00 percent.

“If inflation remains uncomfortably high, the risks appear skewed toward the FOMC moving at a faster pace and/or by a larger amount than we presently project,” Bryson said.

Fed policymakers’ median interest rate estimates issued in December showed the central bank could raise rates three times this year, up from just one hike projected in September, signaling a hawkish shift to confront rising inflation. (

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