Powell announces that the Fed will raise rates in March despite the Russian invasion

The chairman of the US Federal Reserve, Jerome Powell, has confirmed the intention of the US central bank to undertake the first rise in interest rates after the pandemic at the meeting to be held at the end of March, despite the fact that the war between Ukraine and Russia has increased uncertainty. “With a inflation well above 2% and a strong labor marketwe hope it will be appropriate to raise the target range for the fed funds rate at our meeting later this month,” the central banker said in his scheduled speech to the House Financial Services Committee this afternoon.

In this regard, Powell highlights the robust growth rate of the US economy in 2021, with a GDP expansion of 5.5%, while the labor market is in a tight situation, after the creation of 6.7 million jobs last year, which rreduced the unemployment rate to 4%. “Labor demand is very strong, and while labor force participation has increased, labor supply remains subdued. As a result, employers are struggling to fill vacancies, a record number of workers are quitting to accept new jobs and wages increase at its fastest pace in many years,” he warns.

Likewise, the president of the Fed acknowledges the sharp rise in inflation, which is well above the central bank’s target and implies significant difficulties, especially for the most vulnerable. “We know that the best thing we can do to support a strong labor market is promote a long expansionand that is only possible in an environment of price stability”, he adds.

In this regard, the Fed continues to expect inflation to decline throughout the year as supply constraints ease and demand moderates due to the fading effects of fiscal stimulus and the end of expansionary monetary policy. In this way, Powell points out that the Fed’s change of position in the current circumstances will involve both rate hikes and a reduction in the size of the central bank’s balance sheetwhich will begin after the process of raising interest rates has begun, and will proceed in a predictable manner mainly through adjustments to reinvestments.

In any case, the US central banker acknowledges that the short-term effects on the world’s largest economy of the invasion of Ukrainesanctions and events to come “remain very uncertain”. “Doing appropriate monetary policy in this environment requires recognizing that the economy is evolving in unexpected ways. We will have to be quick to respond to incoming data and the evolving landscape,” he stresses.