While acknowledging the economic uncertainty introduced by Russia’s invasion of Ukraine, Federal Reserve Chair Jerome Powell indicated during congressional testimony on Wednesday that the central bank is still likely to raise interest rates later this month.
Powell told members of the House Financial Services Committee the Fed believes it remains appropriate to raise rates at the next meeting on March 15-16, citing inflation well above 2 percent and the strong labor market.
“The process of removing policy accommodation in current circumstances will involve both increases in the target range of the federal funds rate and reduction in the size of the Federal Reserve’s balance sheet,” Powell said.
“As the FOMC noted in January, the federal funds rate is our primary means of adjusting the stance of monetary policy,” he added. “Reducing our balance sheet will commence after the process of raising interest rates has begun, and will proceed in a predictable manner primarily through adjustments to reinvestments.”
The likely increase in interest rates comes even though Powell acknowledged that the Russia-Ukraine conflict has introduced significant uncertainty for the U.S. economic outlook.
“The near-term effects on the U.S. economy of the invasion of Ukraine, the ongoing war, the sanctions, and of events to come, remain highly uncertain,” Powell said.
“Making appropriate monetary policy in this environment requires a recognition that the economy evolves in unexpected ways,” he added. “We will need to be nimble in responding to incoming data and the evolving outlook.”
CME Group’s FedWatch Tool currently indicates a 90.5 percent chance the Fed will raise interest rates by 25 basis points later this month.
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