WASHINGTON (Reuters) – In what now seem the simpler days of December, when there was only a pandemic to worry about, Federal Reserve officials rallied around the view they could tame inflation with modest interest rate hikes while the economy and labor market thrived.
A war in Europe has now been layered on top of the health crisis, and when U.S. central bank policymakers meet this week they will have to decide just how much damage has been done to that rosy outlook, and whether their hopes for an economic “soft landing” have been diminished or dashed altogether.
The Fed is almost certain to raise its benchmark overnight interest rate by a quarter of a percentage point at the end of its two-day policy meeting on Wednesday. More important will be projections showing just how far policymakers think rates will need to rise this year and in 2023 and 2024 to tame inflation that has blasted past their expectations.
The COVID inflation surge https://graphics.reuters.com/USA-FED/INFLATION/jnvwewdbwvw/
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If their outlook for the federal funds rate breaches what is regarded as a neutral level of around 2.50%, it means the mood within the policy-setting Federal Open Market Committee (FOMC) has shifted, and that its members see a need to eventually curb the economy – and run a higher risk of recession – to bring rising prices into line. As of December most Fed policymakers projected that rate would only need to rise to…
