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In an effort to combat a decades-high surge in inflation, the Federal Reserve will move to raise interest rates “soon,” officials said at the end of a two-day policy meeting Wednesday—a largely expected move seeking to temper concerns about more hawkish policy amid a stock-market rout fueled by the central bank’s reversal of pandemic-era stimulus measures.
Jerome Powell, chairman of the US Federal Reserve, speaks during a Senate Banking, Housing and … [+]
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In a Wednesday afternoon statement, the Federal Open Market Committee said it would keep the federal funds rate unchanged at historically low levels between 0% and 0.25%, but that it would be appropriate to raise the rate “soon” with inflation well above 2% and a strong labor market.
The Fed said it expects to end its pandemic-era bond-buying program by early March “in light of the progress the economy has made”; for more than a year, the Fed had been buying at least $80 billion of Treasuries and $40 billion of mortgage-backed securities every month to help stimulate investment and spur the economy.
Officials, led by Fed Chair Jerome Powell, also outlined a plan to begin reducing the Fed’s nearly $9 trillion balance sheet after the first interest-rate hike—the prospects of which sparked a broad market selloff earlier this month.
In emailed comments, Bankrate Chief Financial Analyst Greg McBride called the balance sheet reduction a “more significant” reversal of the Fed’s easy-money policy, cautioning a combination of the two “will complete the transition from going full throttle to putting the brakes on the economy.”
Speaking to reporters Wednesday afternoon, Powell confirmed Fed officials will decide whether to raise interest rates at their next meeting in March, adding that they are currently “of the mind” to do so, and that they haven’t decided on the timing and pace of shrinking the balance sheet.
Stocks fell within minutes of the announcement, with the S&P 500 paring a daily gain of 2% to trade up about 1% by 1:20 pm EST.