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 of 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 rise since December 2018.
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.
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.