Powell Says Interest Rate Hikes Are Yet To Come, But Notes The "highly Uncertain" Impact Of The Invasion Of Ukraine

“Our monetary policy is adapting to the evolving economic environment,” Powell told the House Financial Services Committee. “We have stopped our net purchases of assets. With inflation well above 2% and a strong labor market, we expect it to be appropriate to raise the target range for federal interest rates at our meeting later this month. “

This is in line with previous Fed guidelines. At a policy meeting in January, Powell first hinted at a potential increase in interest rates in the spring.

“I am inclined to propose an increase in the interest rate by 25 basis points,” Powell said Wednesday in response to a question from spokesman Patrick McHenry.

Investors are also on board, and market expectations for a quarter-percent increase are over 90 percent, according to CME FedWatch.

Despite the Omicron variant that hit America at the end of the year, job growth remained intact as inflation continued to rise. In the year ended January, the personal consumption price index, the Fed’s preferred measure of inflation, rose at its fastest pace since 1982.

Powell – along with many economists – continues to expect inflation to fall in 2022.

“We understand that high inflation imposes significant difficulties, especially on those who are least able to cover the higher costs of basic things such as food, housing and transport. “We know that the best thing we can do to support a strong labor market is to encourage long-term expansion, and that is only possible in an environment of price stability,” Powell said.

The central bank has the task of keeping prices stable and employment as high as possible. Only half of this to-do list is currently available.

How Ukraine can affect the Fed

Russia’s invasion of Ukraine is likely to leave its mark on inflation by rising energy prices. Oil futures rose above $ 110 a barrel amid the conflict.

The question to the central bank is how the situation in Ukraine changed the Fed’s plan for a series of interest rate increases, Powell said.

“The short-term effects on the US economy of the invasion of Ukraine, the ongoing war, sanctions and the upcoming events remain very uncertain,” Powell told lawmakers. “Given the current situation, we must act carefully.”

The significant devaluation of the Russian ruble in response to the invasion also underscored that Congress must come up with a regulatory framework to deal with cryptocurrencies such as bitcoin, which can evade economic sanctions and serve as criminal behavior, Powell said.

Wednesday’s hearing marks Powell’s first appearance as professional chairman. His first term as president has ended, but the Senate has not yet voted to confirm him for a new four-year term.