MNI: Fed's Powell Sees March Hike, Risk of Higher Inflation

The Federal Reserve plans to raise its benchmark overnight interest rate for the first time since the pandemic this month and is staying alert to the risk that inflation may not decline as much over the course of the year as it expects, Chair Jerome Powell told the House Financial Services Committee on Wednesday.

The implications of the week-old war in Ukraine for the U.S. economy are "highly uncertain, and we will be monitoring the situation closely," he added in his prepared remarks.

"With inflation well above 2% and a strong labor market, we expect it will be appropriate to raise the target range for the federal funds rate at our meeting later this month," he said.

After starting the process of raising rates, the Fed will also commence reducing its balance sheet by capping reinvestment of maturing assets in a predictable manner, he added.

Inflation has risen sharply to 6.1% by the Fed's preferred measure, the highest in 40 years and well above the Fed's 2% target. Supply disruptions have been larger and longer lasting than anticipated, and price increases are now spreading to a broader range of goods and services, the Fed chief said.

"We continue to expect inflation to decline over the course of the year as supply constraints ease and demand moderates because of the waning effects of fiscal support and the removal of monetary policy accommodation. But we are attentive to the risks of potential further upward pressure on inflation expectations and inflation itself from a number of factors."

With high uncertainty over the near-term effects of Russia's invasion of Ukraine, the Fed will "need to be nimble in responding to incoming data and the evolving outlook," Powell said.

He is set to take questions from lawmakers shortly after 10 a.m.