The Federal Reserve on Wednesday held interest rates at near zero, but reiterated its commitment to withdrawing its pandemic-era easy money policies in the face of rapid price increases.
“With inflation well above 2% and a strong labor market, the Committee expects it will soon be appropriate to raise the target range for the federal funds rate,” the policy-setting Federal Open Market Committee said in its updated statement.
In its first policy-setting meeting of 2022, the Fed reiterated that U.S. economic activity continues to strengthen despite the emergence of the Omicron variant of COVID-19.
But a surge in prices since last year is weighing on the FOMC, where policymakers are coming around to the view that higher interest rates will be needed to prevent runaway inflation.
Higher rates could address inflation by raising borrowing costs and dampening demand — particularly for goods.
The Fed did not opt to raise interest rates Wednesday because policymakers have messaged that they want to end the central bank’s pandemic-era policy of asset purchases first. The FOMC reaffirmed Wednesday that it will wrap up that process in early March, meaning the first pandemic-era rate hike could be coming in six weeks.
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