By Howard Schneider and Lindsay Dunsmuir
WASHINGTON (Reuters) – The Federal Reserve will push ahead with plans to raise rates this month to try to tame high inflation, but the outbreak of war in Ukraine has made the outlook “highly uncertain” for U.S. central bank officials as they go. plan their next steps, Fed Chair Jerome Powell said Wednesday.
In remarks prepared for testimony to the US House of Representatives Financial Services Committee, Powell reiterated the Fed’s central narrative that high inflation and an “extremely tight” job market warrant higher rates.
“We hope it is appropriate to raise the target range for the interest rate at our meeting this month,” Powell said, adding that the Fed is expected to pursue further reductions in its government bond portfolio later this year, currently around about of 8.5 trillion dollars.
But in his opening statement to lawmakers, Powell gave no clue as to how far or how fast the Fed might need to drive its monetary tightening. He said officials still expect inflation to cool this year and contextualized the beginning and conclusion of his remarks with developments in Ukraine.
Inflation “is now well above our long-term target of 2%. Demand is strong, and supply bottlenecks and constraints are limiting how quickly production can respond,” the Fed Chair said.
He added that these supply disruptions were “bigger and longer lasting than anticipated” and reaffirmed the Fed’s pledge to be as tough as necessary to bring prices back on target.
While some of the current inflationary pressures are expected to ease later this year, “we are aware of the risks of possible further upward pressure… We will use our monetary policy tools as appropriate to prevent higher inflation from taking root.”
“The short-term effects on the US economy of the invasion of Ukraine, the ongoing war, sanctions and future events remain highly uncertain,” Powell said.
“Making appropriate monetary policy in this environment requires recognizing that the economy evolves in unexpected ways. We will need to be agile in responding to upcoming data and evolving prospects.”
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