US Fed Holds Key Interest Rate Steady... Indicates Possible Hike in March (2nd Report)

[Image source=Reuters Yonhap News]

[Asia Economy New York=Special Correspondent Joselgina] The U.S. central bank, the Federal Reserve (Fed), indicated that it may raise interest rates in March after keeping the benchmark rate unchanged. It also disclosed a principle to reduce the balance sheet in a predictable manner.

On the 26th (local time), the Fed announced after the Federal Open Market Committee (FOMC) regular meeting that it decided to keep the policy rate at the current level (0.00?0.25%).

The FOMC assessed the recent economic situation, stating, "Economic activity and employment indicators remain strong but are affected by COVID-19," and "Supply and demand imbalances related to the pandemic are causing price increases." It also noted, "Inflation is expected to improve due to expanded vaccinations and easing supply constraints," but added, "Risks to the economic outlook remain due to variant viruses."

The possibility of an imminent rate hike was also hinted at. The FOMC said, "Inflation is well above the 2% target and the labor market is strong, so the committee believes it is appropriate to soon raise the target range for the federal funds rate." Although no specific timing was mentioned, a hike is likely at the March FOMC meeting when tapering ends.

The statement did not include any hints about the size of the rate increase. The market is considering the possibility that the Fed, struggling with inflation, might surprise with a 0.5 percentage point hike at once. The January FOMC did not release a dot plot. The dot plot published in December last year projected an average of three hikes in 2022.

Along with this, the Fed also disclosed a separate stance on balance sheet reduction, stating it will reduce it in a "predictable manner" .

Following the release of the statement indicating a possible rate hike in March, the New York stock market saw all three major indices rise, with the Dow Jones Industrial Average jumping 200 points.