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US Federal Reserve edges closer to interest rate hike as Jerome Powell says inflation outlook ‘just a little bit worse’ |  Economic news

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US Federal Reserve edges closer to interest rate hike as Jerome Powell says inflation outlook ‘just a little bit worse’ | Economic news

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The head of the U.S. central bank said there was “plenty of room to raise interest rates” as he edged closer to a hike in March.

Jerome Powell, chairman of the US Federal Reserve, made the remarks at a news conference after the bank said a hike would be “appropriate soon” – as it battles soaring inflation.

Wall Street stocks have since turned negative, while a rise in March – and later in the year – was already expected, Mr. Powell’s remarks seemed to harden the Fed’s position.

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Wall Street stocks turned negative on comments

Mr Powell said that since his last meeting in December, his inflation expectations had “worn down just a bit” and that there was “a lot of room to raise interest rates without threatening the market work”.

The Fed chief acknowledged that the risk posed by COVID-19 was not over, but added: “The economy has shown great strength and resilience in the face of the ongoing pandemic. “.

The Dow Jones and New York’s S&P 500 gave up earlier gains and fell as much as 1% before recouping some of those losses.

The Fed’s statement left rates unchanged for now and said it would continue to cut its multi-billion asset purchase program, ending them by March.

The move, coupled with a rate hike, will mark a move away from the ultra-loose monetary policies that have helped the central bank shield the world’s largest economy — and financial markets — from the economic turmoil created by the pandemic.

Now, like the UK, America is facing a rising cost of living, with inflation hit 7% for the first time in nearly four decades.

US Federal Reserve edges closer to interest rate hike as Jerome Powell says inflation outlook ‘just a little bit worse’ |  Economic news

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US inflation has hit its highest level in 39 years Pic: AP

At the same time, a pick-up in jobs persuaded the Federal Open Market Committee (FOMC) responsible for setting central bank rates that it could begin to back away from its emergency stance.

“With inflation well above 2% and a strong labor market, the committee expects it will soon be appropriate to raise the target range for the federal funds rate,” the FOMC said in a statement.

Equity markets in the United States have been gripped by concern over the Fed’s upcoming decision with the prospect of higher interest rates weighing on the stocks of tech companies in particular.

This resulted in a turbulent start a year for Wall Street.

Traditionally, rate hikes have been a tool used by central banks to calm demand in the face of soaring prices – and the bank of england has already taken action with a surprise raise just before Christmas.

The Fed’s plans have global implications, particularly for emerging markets where U.S. rate hikes could raise the cost of servicing dollar-denominated debt and hurt foreign investment flows.

Closer to home, they’re also dampening the relative attractiveness of holding onto highly-rated tech stocks because of their potential for future earnings, compared to the rising yields available on bonds as rates rise.

US Federal Reserve edges closer to interest rate hike as Jerome Powell says inflation outlook ‘just a little bit worse’ | Economic news

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