The Federal Reserve said Wednesday it intends to start raising its near-zero interest rate "soon," paving the way for a rate hike as early as March to tamp down rising inflation that could weigh on the U.S. economic recovery from the coronavirus pandemic.
After a two-day meeting of the policy-setting Federal Open Market Committee, the bank maintained its target range for the federal funds rate at 0 to 0.25 percent and decided to continue the tapering of its asset-purchase program, as widely expected.
The Fed reaffirmed that the purchases of Treasuries and mortgage-backed securities -- a program introduced in 2020 to shield the economy from the fallout of the pandemic -- will end in early March this year. It also said it will start to "significantly" reduce its massive asset holdings after an interest rate lift-off.
"With inflation well above 2 percent and a strong labor market, the committee expects it will soon be appropriate to raise the target range for the federal funds rate," the Fed said in a statement released after the meeting.
Fed Chairman Jerome Powell told a press conference that the bank will decide whether to raise the key interest rate in the next FOMC meeting scheduled for March 15 and 16.
"I would say that the committee is of a mind to raise the federal funds rate at the March meeting, assuming that conditions are appropriate for doing so," he said.
The recent spread of the highly transmissible Omicron variant of the novel coronavirus may soften the economy amid less spending in pandemic-sensitive sectors, such as travel and restaurants, and rising numbers of workers off-duty due to illness, quarantines and caregiving needs.
But the impact could be "temporary," Powell said, as the Omicron variant is seen as less virulent than previous strains and the recent surge of cases appears to be peaking.
The Fed has been seeking to achieve maximum employment and bring inflation to a rate of 2 percent over the longer run. But it has been increasingly concerned about the impact of elevated prices, with Powell saying earlier this month that rising inflation is a "severe threat" to the goal of achieving a high level of employment.
Powell reiterated his view that "the best thing" the bank can do to support continued labor market gains is to promote a long economic expansion, which will require price stability.
Asked about the pace of the rate hikes, Powell said, "At this time, we haven't made any decisions about the path of policy and I stress again, that we'll be humble and nimble."
In December, Fed officials hinted at the possibility of three interest rate hikes this year.
The near-zero interest rate policy, along with the so-called quantitative easing program, was introduced in March 2020. The Fed has not raised the interest rate since 2018.
The central bank started scaling down its monthly purchases of Treasuries and mortgage securities in November last year and decided the following month to speed up the tapering amid concerns over rising inflation.
Prices have been rising in the country on the back of economic recovery following the pandemic-induced shutdown. Supply chains have been overwhelmed through a spike in demand for goods, in a shift from spending on travel and services.
Consumer prices in the United States rose 7 percent in December over the previous year, the largest 12-month increase since the period ending June 1982, according to data from the Labor Department.