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Fed Signals March Hike in Play as Battle to Stem Inflation Intensifies -Breaking


© Reuters.

By Yasin Ebrahim

Investing.com – The Federal Reserve on Wednesday signalled a sense of urgency to begin raising rates, and reining in crisis-era monetary policy measures to bring red-hot inflation under control.

In a statement, the Fed stated that with inflation at a high of 2 percent and strong labor markets it was likely to soon raise the target range of the federal funds rates. 

While the Federal Reserve maintained interest rates within the 0%-0.25% range, they indicated that rates may rise after March’s monthly purchases.

With a view towards ending its quantitative easing program in mid-March, the Fed stated that it will increase the rate at which it purchases monthly bonds to $30 Billion per month. 

The odds of a March rate hike have risen to about 93%, according to Investing.com’s Fed Rate Monitor Tool.

Fed Chairman Jerome Powell has signaled a shift to hawkish policy with the latest signals. Jerome Powell, Fed chairman had earlier downplayed the likelihood of rate increases following the close of tapering.

Stubbornly high inflation has forced the Fed to rethink its monetary policy stance, and part ways with its narrative that price pressures were “transitory.”

Inflation efforts have been accelerated by the Fed thanks to the positive changes in the labour market. The unemployment rate has fallen to 4% from pre-pandemic levels.

Wall Street believes that March’s potential rate rise will be followed by three more rates this year. This could result in the Fed beginning to shrink its balance sheets in the summer.

 “We see the Fed delivering its first of four 25bp rate hikes this year at its March meeting, then announcing a more aggressive runoff of its balance sheet in July,” Morgan Stanley said in a note.

However, the market might find it hard to swallow the combination of a shrinking balance and increasing rates. 

“I would personally like to see the Fed hike once and then use the balance sheet versus rate hikes … Doing both at the same time could be pretty difficult for markets,” John Luke Tyner, portfolio manager at Aptus Capital Advisors said in an interview with Investing.com on Tuesday.

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Mike Robinson
Mike covers the financial, utilities and biotechnology sectors for Street Register. He has been writing about investment and personal finance topics for almost 12 years. Mike has an MBA in Finance from Wake Forest University.