Fed expected to raise interest rates for the first time since 2018

The Federal Reserve is expected to raise short-term interest rates by 0.25%, marking the central bank’s first substantial move to quell high inflation as prices rise at paces not seen in about 40 years, Wednesday afternoon.

The Fed has not raised interest rates since 2018. In the face of the COVID pandemic, the central bank slashed the target on its benchmark interest rate to near zero — where it has remained for two years.

More interest rate increases will be needed to slow inflation in the U.S. Fed policymakers will also likely lean on a reduction in its $9 trillion balance sheet to further pull back on its support to the economy.

But the Fed will have to navigate carefully. A war in Ukraine and COVID-induced shutdowns in China are raising the risk of a Fed tightening cycle in the midst of a global slowdown.

When the central bank releases its policy statement at 2 p.m. ET, keep an eye on the set of economic projections to be released alongside the statement. A round of “dot plots” mapping out each Fed policymaker’s forecast for future interest rate hikes will be key to understanding the central bank’s aggression in tackling inflation.

Fed Chairman Jerome Powell will answer questions from the press following the Fed’s decision at 2:30 p.m. ET.

Brian Cheung is a reporter covering the Fed, economics, and banking for Yahoo Finance. You can follow him on Twitter @bcheungz.

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