Fed Repeats It Will ‘Soon’ Be Time to Raise Interest Rates

(Bloomberg) — The Federal Reserve reiterated its view that it will “soon” be time to raise interest rates to counter high inflation amid a buoyant U.S. job market.

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The Fed said “it will soon be appropriate to raise the target range for the federal funds rate,” citing inflation well above its 2% target and a “strong” labor market in its semi-annual report to Congress released Friday, ahead of testimony to lawmakers next week by Chair Jerome Powell.

Powell told reporters after officials met in January that they were leaning toward raising rates at their March 15-16 meeting to confront the hottest inflation in 40 years.

“Recent geopolitical tensions related to the Russia–Ukraine situation are a source of uncertainty in global financial and commodity markets,” according to the report, which reflected information gathered through 12 p.m. Washington time on Feb. 23, before Russia’s invasion of Ukraine.

Officials speaking since the conflict escalated have stuck to their resolve for liftoff next month with at least one — Governor Christopher Waller — arguing there was a strong case for a half-point move if the economic numbers keep coming in hot.

Data earlier on Friday showed the Fed’s preferred gauge of price pressures rising 6.1% in the 12 months through January — three times their 2% target and the most since 1982. Officials get another important piece of evidence next Friday with February’s employment report.

The report drew attention to indebtedness among certain types of financial institutions. One common measure of hedge fund leverage, the ratio of gross notional exposures to equity capital, is near its peak since data became available in 2012.

It also noted that low interest rates, which the Fed slashed to almost zero as Covid-19 spread in early 2020, were contributing to elevated prices among risky assets.

“One common measure of equity valuations, the ratio of equity prices to forecast earnings, remains high compared with historical values,” the report said.

(Updates with more details from report from seventh paragraph.)