Federal Reserve Chair Jerome Powell said the central bank was ready to raise interest rates in March and didn’t rule out moving at every meeting to tackle the highest inflation in a generation.

“The committee is of a mind to raise the Fed funds rate at the March meeting” if conditions are there to do so, Powell told a virtual press conference on Wednesday, while noting that officials have not made any decisions about the path of policy because it needs to be “nimble.”

He was speaking after the Federal Open Market Committee concluded its two-day meeting with a statement that declared “it will soon be appropriate to raise the target range for the federal funds rate,” citing inflation well above its 2 per cent target and a strong job market.  

In a separate statement, the Fed said it expects the process of balance-sheet reduction will commence after it has begun raising rates. Powell said no decision was taken at this meeting on the pace of the runoff or when it would start.

The hawkish pivot, against a backdrop of turmoil in stocks, comes amid consumer inflation readings that have repeatedly surprised and hit 7 per cent -- the most since the 1980s -- and a tight labor market that’s pushed unemployment down faster than anticipated to almost its prepandemic level.

The yield on 10-year Treasury notes rose sharply as Powell spoke while stocks fell and the dollar pushed higher.

“The tone of Powell’s press conference is hawkish,” said Neil Dutta, head of economic research at Renaissance Macro Research. “The Fed is going to be much more willing to hike faster in the face of upside inflation surprises than ease in the face of downside employment surprises.” 

A rate hike would be the central bank’s first since 2018, with many analysts forecasting a quarter-point increase in March to be followed by three more this year and additional moves beyond. Critics say the Fed has been too slow to act and is now behind the curve in tackling inflation, though key market gauges don’t back that view. Even some Fed officials have publicly discussed if they should raise rates more this year than forecast.

“We will need to be nimble so that we can respond to the full range of plausible outcomes,” Powell said. “We will remain attentive to risks, including the risk that high inflation is more persistent than expected, and are prepared to respond as appropriate.”

The vote was unanimous. Philadelphia Fed President Patrick Harker voted as the alternate for the Boston Fed, which is currently without a president, while three vacancies at the Board of Governors reduced the number of voters at this meeting to nine.

Officials held the target range for their benchmark policy rate unchanged at zero to 0.25 per cent as expected.

They also said they will conclude asset purchases on schedule, leaving them on track to end in “early March.”

The Fed’s balance sheet stands at nearly US$8.9 trillion, more than double its size before officials began massive asset purchases at the onset of the pandemic to calm market panic. 

In a separate statement outlining the principles it would apply to reducing its balance sheet, the Fed said that over the longer run, it intends to primarily hold Treasury securities.

The Fed currently also holds mortgage-backed securities and the shift is aimed at minimizing its effect “on the allocation of credit across sectors of the economy,” it said.

Despite criticism that it has dragged its feet, the Fed is moving much quicker than it once expected to -- prompted by the failure of inflation to fade as anticipated amid robust demand, snarled supply chains and tightening labor markets. As recently as September, central bank officials were split on whether any rate hikes would be warranted in 2022.

The meeting is the last of Powell’s current term as Fed chair, which ends in early February. He’s been nominated to another four years at the helm by President Joe Biden and is expected to be confirmed by the Senate with bipartisan support. 

In his second term, Powell, 68, will need to persuade investors and the American public that the FOMC can successfully get inflation back down to the Fed’s 2 per cent goal while also nurturing job gains as the labor market heals from the pandemic.

Biden last week endorsed the Fed’s plans to scale back monetary stimulus and said it’s the central bank’s job to rein in inflation, which has become a political headache for Democrats ahead of November midterm elections where they could lose their thin majorities in Congress.