Ready for more rate hikes, says US Federal Reserve's Jerome Powell

Federal Reserve Chair Jerome Powell reaffirmed the US central bank is on track to raise interest rates this month and commence a series of hikes to curb the highest inflation in decades, though Russia’s invasion of Ukraine means it will move “carefully.” 

“I would be recommending and supporting a one quarter of 1 per cent increase” at the March meeting, he told the Senate Banking Committee on Thursday, reiterating comments made Wednesday during testimony to a House panel. “We are prepared to raise by more than that” at one or more meetings if inflation doesn’t come down, he added, noting that the central bank will also be shrinking its balance sheet this year. “I do think it’s going to be appropriate for us to continue to proceed along the lines that we had mind before the Ukraine invasion happened and that was to raise interest rates at the March meeting and continue through the course of the year,” he said.

“In this very sensitive time at the moment, I think it’s appropriate for us to be careful in the way we conduct policy simply because things are so uncertain and we don’t want to add to that uncertainty.”

Fed officials are pivoting to tackle the fastest inflation in 40 years and a few have publicly discussed the potential need to hike by a half point sometime this year if inflation comes in too hot. They get February data on consumer prices on March 10. The U.S. central bank next meets March 15-16.

The Fed chief said that officials this month will set the pace at which the balance sheet will decline via runoff of maturing securities, subject to caps to smooth out the process and ensure that it is predictable and doesn’t cause volatility or interfere with market functioning.

During Thursday’s hearing, Powell said that the Russian attack was causing risks both to inflation -- via higher energy and commodity prices -- as well as to growth, if increased geopolitical risks dim investment or cause consumers to temper spending. He also noted that higher gasoline prices typically also take a bite out of household budgets. 

“We need to be alert and nimble as we make decisions,” Powell told senators. He noted that the surge in energy prices will likely spill into inflation and if that shift proved to be lasting, it could put upward pressure at the “margin” to longer-term inflation expectations that the central bank wants to stop creeping up -- especially because price pressures are already elevated.

Russia’s attack has whiplashed financial markets and sent energy and commodity prices surging, with West Texas Intermediate crude hovering around $110 a barrel.

While some officials have sounded open to raising rates by a half point this month, Cleveland Fed President Loretta Mester -- who’s a policy voter this year -- said she was fine with beginning the tightening cycle with a 25 basis-point move while being ready to act more aggressively if needed at some stage.

“Starting with 25 followed by further increases in coming months I think puts us in a good position,” Mester told CNBC in an interview Thursday. She added that by the middle of the year, “if we don’t see inflation moving back down, that would be a signal to me that we have to remove accommodation at a stronger pace, at a faster pace.”