Powell Affirms Fed on Track for March Hike, Will Move With Care

© Reuters. Powell Affirms Fed on Track for March Hike, Will Move With Care

(Bloomberg) -- Federal Reserve Chair Jerome Powell reaffirmed the U.S. central bank is on track to raise interest rates this month and commence a series of hikes to curb decades-high inflation, though Russia’s invasion of Ukraine means it will move “carefully.” 

“I would be recommending and supporting a one quarter of 1% increase” at the March meeting, he told the Senate Banking Committee Thursday. “We are prepared to raise by more than that” if inflation doesn’t come down, he added. 

“I do think it’s going to be appropriate for us to continue to proceed along the lines that we had mind before the Ukraine invasion happened and that was to raise interest rates at the March meeting and continue through the course of the year,” he said. “In this very sensitive time at the moment, I think it’s appropriate for us to be careful in the way we conduct policy simply because things are so uncertain and we don’t want to add to that uncertainty.”

Fed officials are pivoting to tackle the fastest inflation in 40 years and a few have publicly discussed the potential need to hike by a half point sometime this year if inflation comes in too hot. They get February data on consumer prices on March 10. Powell previously told a House panel Wednesday that he’ll propose a 25 basis-point increase when the U.S. central bank meets March 15-16. 

During Thursday’s hearing, Powell said that the Russian attack was causing risks both to inflation -- via higher energy and commodity prices -- as well as to growth, if increased geopolitical risks dim investment or cause consumers to temper spending. He also noted that higher gas prices typically also take a bite out of household budgets. 

“We need to be alert and nimble as we make decisions,” Powell told senators. He noted that the surge in energy prices will likely spill into inflation and if that shift proved to be lasting, it could put upward pressure at the “margin” to longer-term inflation expectations that the central bank wants to stop creeping up -- especially because price pressures are already elevated.

Russia’s attack has whiplashed financial markets and sent energy and commodity prices surging, with West Texas Intermediate crude hovering just under $110 a barrel.

Powell’s confirmation for a second term has been stalled by Republican opposition to President Joe Biden’s selection of Sarah Bloom Raskin to be vice chair for supervision.

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