By Howard Schneider

WASHINGTON (Reuters). The Federal Reserve plans to announce on Wednesday that it will raise its March interest rate. This is in response to the continuing coronavirus outbreak, a period of volatility on markets, and Western concerns about a Russian invasion.

After a two day meeting, the policy decision will be made at 2 pm EST (2000 GMT). However, it won’t force the U.S. central banks to take a specific course of action when its rate-setting panel meets again in seven months.

However, if there is no significant change in the economic course the Fed will likely begin withdrawing support for the pandemic-era period at its March meeting. This means that higher interest rates combined with a lower central bank presence on financial markets can help to slow price rises.

Graphic: The COVID inflation surge The COVID inflation surge, https://graphics.reuters.com/USA-FED/INFLATION/akvezawxopr/chart.png The meetings before such policy actions are typically used to telegraph what’s coming.

Cornerstone Macro economist Roberto Perli said that Fed Chair Jerome Powell, along with his fellow Fed members, “will talk up and down the economy, without sounding alarmist on inflation, and prepare the ground to a March lifting of interest rates”. The Fed Chair Jerome Powell and his colleagues will continue debating the timing and how to reduce central bank’s large holdings of Treasury bonds, mortgage-backed securities and other assets to further tighten monetary policies.

Half an hour following the publication of the statement, Powell will begin a press conference. Powell will speak on behalf of investors, who expect a stronger fight against inflation and have already sold U.S. stocks.

Expect the Fed to maintain its near-zero overnight benchmark rate on Wednesday.

Graphic: How fast will the Fed go?, https://graphics.reuters.com/USA-FED/gkplgbrkjvb/chart.png TRANSITORY NO MORE

Wall Street trading this week was volatile and has fallen by around 8% in the year. This, combined with rising market rates for items like home mortgages will make Powell have to balance between trying to maintain the economy’s recovery and ensuring that inflation control is the Fed’s top priority.

“He won’t sound nervous about inflation remaining high for a long time,” Perli wrote, but will leave open the possibility of raising rates faster than anticipated, or even by more than the usual quarter-percentage-point increment, “as insurance against inflation tail risks, which are obviously substantial.”

These risks have been growing steadily over the past five months. Powell in August used a high-profile speech to outline why he thought high inflation would be “transitory,” but since then economic data have shown otherwise https://graphics.reuters.com/USA-FED/INFLATION/zdpxoqkrkvx/index.html.

As consumer inflation continues to rise at an unprecedented 7% per year (the fastest rate of growth since the 1980s), the White House is highlighting the matter as a major economic and political risk for President Joe Biden’s Democratic Party.

This week’s data will show that the Fed is closely monitoring inflation and the pace at which it rises at the Fed.

There is little relief in sight. International developments are putting the world at risk for worse. China’s stringent coronavirus lockdown policies may mean that global supply chains will take longer to return to normal. Additionally, a conflict between Russia and Ukraine might increase inflation.

“The consequences for the energy market … likely would be a further increase in prices of oil and , and therefore of energy costs more broadly for many countries in the world,” Gita Gopinath, the first deputy managing director of the International Monetary Fund, said on Tuesday after the IMF lowered its 2022 economic growth forecasts https://www.reuters.com/markets/us/imf-cuts-growth-forecasts-us-china-world-omicron-spreads-2022-01-25 for the U.S., Chinese and global economies.

“So, in terms of headline prices numbers it certainly could keep headline price much higher for longer,” she stated.