Federal Reserve Chair Jerome Powell indicated Wednesday that the central bank plans to move forward with a March interest rate hike despite economic volatility related to the escalating Russia-Ukraine war. Sweeping sanctions against Russia over its aggression toward Ukraine have added to the challenge facing the Fed, which is aiming to cool surging inflation without damaging the labor market. Powell, who is set to testify before committees from both chambers of Congress this week, noted the conflict “is causing tremendous hardship for the Ukrainian people.” “The near-term effects on the U.S. economy of the invasion of Ukraine, the ongoing war, the sanctions, and of events to come, remain highly uncertain,” Powell said in prepared remarks for his appearance before the House Financial Services Committee. “Making appropriate monetary policy in this environment requires a recognition that the economy evolves in unexpected ways,” Powell added. “We will need to be nimble in responding to incoming data and the evolving outlook.” The Ukraine war has roiled global markets in recent days, and investors are watching closely to see whether the conflict impacts the Fed’s roadmap for the year ahead. Prior to the conflict, Powell indicated an interest rate hike was likely coming in March – the first of several hikes meant to curb inflation, which hit 7.5% in January. Powell will tell lawmakers the rate hike is still on track. “With inflation well above 2 percent and a strong labor market, we expect it will be appropriate to raise the target range for the federal funds rate at our meeting later this month,” Powell said in the prepared remarks. The Fed chair added that the central bank will begin reducing its balance sheet of nearly $9 trillion in bond holdings once the rate hikes were underway. The US and other countries around the world have enacted sweeping sanctions against the Kremlin and close associates of Russian President Vladimir Putin following the invasion of Ukraine. The Russian ruble and Moscow Stock Exchange cratered in response to the sanctions, which included the disconnection of certain Russian banks from the SWIFT international payments system. Powell’s remarks make it clear that even top economic officials are uncertain about how the sanctions could impact the economies of other nations. Some European allies hesitated to enact a SWIFT ban due to concerns that the effects would trickle into their economies.
