The Federal Reserve kept its interest rates range at near-zero levels Wednesday but hinted it would soon boost borrowing costs after a year of surging inflation, AzVision.az reports citing The Hill.
The Federal Open Market Committee (FOMC), the Fed’s monetary policy arm, kept its baseline interest rate range at zero to 0.25 percent, the level set in March 2020 amid the onset of the coronavirus pandemic. The FOMC also said it would conclude its monthly purchases of Treasury bonds and mortgage-backed securities in March, in line with a pace of tapering set in December.
"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 FOMC said in a statement.
The decision was unanimously approved by the FOMC.
The Fed was widely expected to hold off on a rate hike Wednesday even as it pivots away from a patient approach to rising prices. A majority of FOMC members expected the Fed to hike rates at least three times this year, according to projections released in December, after inflation rose well above their expectations.
The personal consumption expenditures index minus food and energy prices, the Fed’s preferred gauge of inflation, rose at an annual rate of 4.7 percent in November. That rate was more than twice the Fed’s average annual target of 2 percent. Consumer prices broadly rose 7 percent in 2021, according to the Labor Department’s consumer price index.
While the Fed had held off on hiking rates as the economy continued to recover from the coronavirus recession, officials ceded last month they could no longer afford to keep crisis-level rates amid high price growth and intense demand for labor.
"In light of the remarkable progress we've seen in the labor market and inflation that is well above our 2 percent long-term level, the economy no longer needs sustained high levels of monetary policy support. That is why we are phasing out our asset purchases in way we expect it will soon be appropriate to raise the target range for the federal funds rate," Federal Reserve Chair Jerome Powell said Wednesday.
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