A senior U.S. Federal Reserve official on Thursday signaled that the central bank is on track to raise interest rates next month despite escalating geopolitical tensions over Ukraine.
"Barring an unexpected turn in the economy, I believe it will be appropriate to move the funds rate up in March and follow with further increases in the coming months," Federal Reserve Bank of Cleveland President Loretta Mester said at a virtual event.
"The implications of the unfolding situation in Ukraine for the medium-run economic outlook in the U.S. will also be a consideration in determining the appropriate pace at which to remove accommodation," she said.
Noting that the imbalances between demand and supply in both product and labor markets are contributing to the very high inflation readings, Mester said she expected U.S. inflation to remain above 2 percent this year and next, with inflation risks "tilted to the upside."
"Geopolitical events add upside risk to the inflation forecast even as they put some downside risk to the near-term growth forecast," she said.
Mester's remarks came after the U.S. Labor Department recently reported that the consumer price index in January rose 7.5 percent from a year earlier, the fastest annual pace in almost 40 years.
The Fed signaled last month that the central bank is ready to begin a series of interest-rate hikes in March to combat surging inflation as it exits from the ultra-loose monetary policy enacted at the start of the COVID-19 pandemic.
According to the CME Group's Fedwatch tool, investors are betting that there is a 100-percent chance of a rate hike at the Fed's March meeting.
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