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Powell signals support for hiking interest rate at Fed meeting in two weeks

Biden outlines plan to fight inflation
Biden outlines his plan to fight inflation in State of the Union address 09:36

The Federal Reserve will move ahead with raising interest rates at its upcoming meeting, though how Russia's invasion of Ukraine will affect the U.S. economy isn't certain, Chairman Jerome Powell said Wednesday. The central bank head's remarks come as the United States faces soaring inflation, with prices increasing at their fastest rate in 40 years.

"I do think it will be appropriate to raise our target range for the federal funds rate at the March meeting in a couple of weeks," Powell said at a hearing Wednesday before the House Financial Services Committee on the state of the economy. "And I'm inclined to propose and support a 25 basis point rate hike."

Powell said he expects inflation will peak and begin to come down this year. While Powell currently supports a .25% interest rate hike, he said the central bank is prepared to "move more aggressively" at future meetings — leaving the door open to 0.5% rate hikes — if inflation increases or is more persistent.

Heading into the March 15-16 meeting, officials are weighing multiple factors in their upcoming decision. Powell said the Fed will proceed carefully. 

As Russia invaded Ukraine, the United States and its allies slapped historic sanctions on Russia and restricted trade with the country. Private businesses are also cutting ties. The price of the ruble plummeted 30% and the Russian stock market lost 40% of its value. The price of crude oil hit its highest prices since 2014 at more than $100 per barrel. But the full impact such actions will have on American wallets will take time to emerge. 

"The price of oil depends on events that haven't occurred yet. It really depends on where this goes going forward. We have seen prices move up, including in just the past couple of days. And they've moved up quite substantially since if you go back three months before this incident kind of began, prices are up quite a bit," said Powell. "The effects are going to be passed through into gas prices, to lower economic activity and into inflation – headline inflation."

Powell acknowledged that there may be unintended, unexpected effects from the sanctions and other actions against Russia, but would not offer specifics. He noted the U.S. does not have large interactions with the Russian economy, so any impact would be indirect.

As energy prices increase, some Republican lawmakers have called on the Biden administration to increase its own energy production capacity. Powell declined to weigh in on the push to expand the supply of oil, saying energy policy was a matter for the Biden administration and Congress.

President Biden said getting prices under control is his top priority during his State of the Union address Tuesday. Mr. Biden called for making more products such as cars and semiconductors in the U.S., and making the country less reliant on foreign supply chains. 

"Economists call it 'increasing the productive capacity of our economy,'' Biden said in his speech. "I call it building a better America." 

The president also called for cracking down on companies overcharging and alleviating the pain of inflation by lowering other everyday costs for Americans, such as the cost of child care and health care.

While the Biden administration presses for such steps, White House economists have acknowledged addressing the supply-side constraints is not a near-term solution to rising inflation, and that inflation is in the purview of the Fed. 

Powell said the central bank has the tools and has to use them to get inflation under control, but to the extent they can get help on the supply side it would make it "so much easier." 

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