March 16 (UPI) — For the first time since 2018, the U.S. central bank voted to increase short-term interest rates during a policy meeting on Wednesday, a measure to fight rising inflation that’s being affected by high gas prices and Russia’s war in Ukraine.
The Federal Reserve concluded its policy meeting on Wednesday afternoon, at which time it announced a quarter-point rate increase. The rate has been near zero since the start of the COVID-19 pandemic.
“With appropriate firming in the stance of monetary policy, the committee expects inflation to return to its 2% objective and the labor market to remain strong,” the Federal Open Market Committee said in a statement.
“In support of these goals, the committee decided to raise the target range for the federal funds rate to 1/4 to 1/2% and anticipates that ongoing increases in the target range will be appropriate.”
The primary factors pressing the need for a rate hike include the rising costs of fuel and food. Government figures for February showed that U.S. inflation rose on a 12-month basis to the highest level in 40 years.
Nine members of the committee voted for the quarter-point increase. One member, James Bullard, voted against the move in favor of a steeper half-point increase.
The Federal Reserve is also facing fresh uncertainties, including the fighting in Ukraine that’s led to a U.S. oil embargo and rising prices at the pump. A new spike in coronavirus cases in China may also cause new supply chain issues.
Fed Chairman Jerome Powell told lawmakers earlier this month that he favored a rate hike at Wednesday’s meeting.
“Making appropriate monetary policy in this environment requires a recognition that the economy evolves in unexpected ways,” he said. “We will need to be nimble in responding to incoming data and the evolving outlook.”
The Fed on Wednesday also indicated that there will be several more rate hikes before the end of 2022 — and it expects inflation to remain high and end the year at about 4.3%.
“The economy is coming into full employment rapidly and inflation is way too high. You add that all up and that means they’ve got to raise rates,” Jim Caron, chief fixed-income strategist at Morgan Stanley Investment Management, told CNBC.
“The degree of uncertainty is extraordinary. They told us what they were going to do. They did that to get rid of the uncertainty.”
Experts say that Americans can expect to see the impact of the rate hike in their credit card and mortgage payments, but they should see a benefit to other areas like savings accounts, for example.
The Fed’s announcement on Wednesday comes a day after Sarah Bloom Raskin withdrew her name from consideration as President Joe Biden’s nominee to a seat on the Fed’s board of governors.
The former deputy treasury secretary made the decision to withdraw her name after Democratic Sen. Joe Manchin of West Virginia, a frequent swing voter, said he’d vote to oppose her nomination, leaving Democrats one vote short of confirmation.