The Fed is ready to raise rates

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The message couldn’t be more direct. The Federal Reserve’s official communiqué warned that “with inflation well above the 2% target and a strong labor market, the Committee expects that it will soon be appropriate to raise the range for Federal funds ”, which currently remains between zero and 0.25%. The purchases of securities will be zeroed – it was confirmed – at the “beginning of March”. At the meeting on the 16th they will therefore be finished and the tightening, which will be slow and gradual, can begin “if the conditions are appropriate,” President Jerome Powell said at a press conference.

In December, again in the official statement, the Fed had simply spoken of inflation that had “exceeded the 2% target for some time” – Powell acknowledged that since then the situation “has worsened a bit” – and not he had referred to the occupation. The indication of the «strong labor market» is then the key phrase, the one necessary for the Fed to be able to initiate the rate hike. In fact, still at the end of 2021, the US central bank explained that rates should remain steady “until the conditions of the labor market have reached a level consistent” with the definition of maximum employment.

On the other hand, the diagnosis of the economy remained unchanged. While repeating that the outlook depends on the progress of the pandemic, the Fed still believes that “the indicators of economic activity have continued to strengthen”, and even the “sectors hardest hit by the pandemic have improved”, despite the new wave of infections. . Above all, “the increase in jobs has been significant in recent months and the unemployment rate has dropped significantly.”

The prospects continue to weigh “risks” including those posed by the new variants of the coronavirus. The wave of infections generated by the omicron variant “will certainly weigh” – explained Powell – on some sectors in particular, such as travel and restaurants, but in general on the entire economy. The Fed, with many experts, however, expects a rapid end to this wave and a return to a strong recovery, characterized by a “very strong” labor market, added Powell, with wages growing at a faster rate than in the past and in excess of productivity. Progress on employment has been far-reaching, including minorities such as African Americans and Hispanics, who often lag behind.