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Federal Reserve signals it will raise key interest rate in March

Financial Markets Wall Street
Posted at 9:21 AM, Jan 26, 2022
and last updated 2022-01-26 15:39:34-05

The Federal Reserve signaled Wednesday that it plans to raise its benchmark interest rate as soon as March.

Historically low interest rates led to increased growth amid the COVID-19 recession, but have caused a severe spike in interest rates that may have stifled some investment.

The move comes as wild volatility in the stock market this week put heightened scrutiny on whether the Fed will clarify just how fast it plans to tighten credit and potentially slow the economy.

To further tighten credit, the Fed plans to end its monthly bond purchases in May.

In a briefing Wednesday, the Federal Reserve Chair Jerome Powell said improvement in supply chains and fiscal policy should help bring down inflation during 2022.

Later this year, the Federal Reserve may start reducing its huge stockpile of Treasury and mortgage bonds.

Earlier this month, as the Associated Press reported that notes from a December Fed meeting showed that the central bank had considered reducing its bond holdings by not replacing bonds that mature, which is seen as a more aggressive step in comparison to simply ending purchases. Experts say the Federal Reserve could start reducing its holdings by July.

The stock market appeared to rebound on Wednesday as investors were seen buying a dip hours before the highly anticipated mid-week Federal Reserve announcement, Barron's reported.

Kent Engelke of Capitol Securities Management told the magazine, “Will there be any surprises in the outcome of the Fed meeting? I think at this juncture perhaps all but the worst-case scenario has been discounted.”