Fed Interest-Rate Decision Tees Up March Increase

The Federal Reserve signaled it would begin steadily raising interest rates in mid-March, its latest move toward removing stimulus to bring down inflation.

Fed Chairman

Jerome Powell

said Wednesday that the central bank was ready to raise rates at its March 15-16 meeting and could continue to lift them faster than it did during the past decade.

“This is going to be a year in which we move steadily away from the very highly accommodative monetary policy that we put in place to deal with the economic effects of the pandemic,” he said at a news conference following a Fed policy meeting.

Stocks sold off while he spoke, and yields on 10-year Treasury securities climbed as investors anticipated a more aggressive path of rate rises.

Mr. Powell left the door open to raising rates at consecutive policy meetings, which are held roughly every six weeks. That is something the Fed hasn’t done since 2006.

“I don’t think it’s possible to say exactly how this is going to go,” he said. Earlier, Mr. Powell said, “I think there’s quite a bit of room to raise interest rates without threatening the labor market.”

Mr. Powell’s remarks led investors in interest-rate futures markets to fully anticipate a March rate increase of at least one-quarter percentage point and a nearly 70% chance of a second rate increase by the Fed’s meeting after that in early May, according to CME Group.

Mr. Powell suggested that the central bank wasn’t likely to offer any forward guidance, or the words officials use to describe their intentions with interest rates over the next few years, which has been a central feature of Fed policy.

In 2015, the Fed prepared markets for a mild path of no more than one rate rise every quarter by saying increases would be “only gradual.”

Mr. Powell’s message Wednesday was that compared with the rate rises in that cycle, “We need to be prepared for it to be faster and for more substantial moves to be made over the course of the year,” said Kristina Hooper, chief global market strategist at Invesco.

Relying less on forward guidance means “you risk unhinging market expectations” about interest rates, said

Vincent Reinhart,

a former Fed economist who is now chief economist at Mellon.

The central bank also approved one final round of asset purchases, which will bring the stimulus program to a conclusion by March. Officials continued deliberations at their two-day meeting over how and when to shrink the Fed’s $9 trillion securities portfolio, which has more than doubled since March 2020.

The Fed released a separate, one-page statement that spelled out high-level principles to guide a process for “significantly reducing” those holdings.