Federal Reserve: Fed Chief has to balance inflation and Ukraine risks

Federal Reserve chair Jerome Powell must strike a delicate balance before Congress in the coming week as he aims to reassure Americans the central bank will confront high inflation at the same time war in Ukraine clouds the economic outlook. Powell will likely endorse recent signals from his colleagues that the Fed remains on track to raise interest rates in March. Still, Russia’s invasion of its neighbour has injected a dose of uncertainty as the conflict contributes to additional price pressures that risk cooling demand.

While acknowledging the precarious situation, Fed policy makers speaking since the conflict began have played down the grounds for delaying rate liftoff at their March 15-16 meeting – including at least least one who favours a half-point hike if the economic data keep coming in too hot. Investors agree, with a quarter-point move fully priced in for next month.

Data on Friday showed the Fed’s preferred gauge of price pressures jumped 6.1% in January from a year ago, three times the central bank’s 2% target and the most since 1982. Officials get another important piece of evidence on March 4 with the February jobs report.

US employers probably added another 400,000 jobs, while average hourly earnings growth accelerated to 5.8% from a year earlier, based on median projections in a Bloomberg survey of economists. Surveys on manufacturing and services activity are among other key data on the agenda.

Powell, who’s nomination for a second four-year term has been stalled by Republican opposition to President Joe Biden’s selection of Sarah Bloom Raskin for vice chair of supervision, testifies Wednesday before House lawmakers and a day later to senators.