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Powell signals support for higher interest rates at Fed meeting in two weeks

The Federal Reserve will go ahead with raising interest rates at its next meeting, but how The Russian invasion of Ukraine will affect the US economy is uncertain, President Jerome Powell said on Wednesday. The central bank chief’s remarks come as the United States faces galloping inflationwith prices rising at their fastest rate in 40 years.

“I think it will be appropriate to raise our target range for the federal funds rate at the March meeting in a few weeks,” Powell said during a Wednesday hearing 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 to peak and start falling this year. While Powell currently backs an interest rate hike of 0.25%, he said the central bank was ready to “act more aggressively” in future meetings – leaving the door open for rate hikes of 0.25%. 0.5% – if inflation is rising or more persistent.

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

As Russia invaded Ukraine, the United States and its allies imposed historic sanctions on Russia and restricted trade with the country. Private companies are also cutting ties. the ruble price fell 30% and the Russian stock market lost 40% of its value. The price of crude oil has reached its highest prices since 2014 over $100 a barrel. But the full impact such actions will have on US portfolios will take time to emerge.

“The price of oil depends on events that haven’t happened yet. It really depends on the future. We’ve seen prices go up, including in the last couple of days. And they’ve gone up dramatically since then. If you go back three months before this incident started, prices have risen significantly,” Powell said. “The effects will ripple through gasoline prices, lower economic activity and inflation – l ‘headline inflation’.

Powell acknowledged that sanctions and other actions against Russia could have unintended and unexpected effects, but did not elaborate. He noted that the United States does not have significant interactions with the Russian economy, so any impact would be indirect.

As energy prices are rising, some Republican lawmakers have called on the Biden administration to increase its own power-generating capacity. Powell declined to weigh in on efforts to boost oil supplies, saying energy policy is up to the Biden administration and Congress.

President Biden said control prices 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 United States and making the country less dependent 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 businesses that overcharge and easing the pain of inflation by reducing other day-to-day costs for Americans, such as the cost of childcare and health care.

As the Biden administration pushes for such measures, White House economists have acknowledged that addressing supply-side constraints is not a short-term solution to rising inflation, and that inflation is the Fed’s purview.

Powell said the central bank has the tools and must use them to get inflation under control, but to the extent it can get help from the supply side, it would make things “so much easier.”