WASHINGTON, Jan 26 (Reuters) - The Federal Reserve is expected on Wednesday to signal plans to raise interest rates in March as it focuses on fighting inflation and sets aside, at least for now, economic risks posed by the ongoing coronavirus pandemic, a bout of market volatility, and Western fears of a Russian invasion of Ukraine.
The policy decision, due to be released at 2 p.m. EST (1900 GMT) after a two-day meeting, won't commit the U.S. central bank to a particular course of action when its rate-setting committee meets again in seven weeks, and for now the benchmark overnight interest rate will remain unchanged at the near-zero level.
But absent a marked shock to the economy, that will likely change in March when the Fed is expected to approve the first of what may be several quarter-percentage-point interest rate hikes this year.
This week's meeting, analysts say, can be used to telegraph what's coming both on rates and an eventual decision to reduce the Fed's massive holdings of government bonds as a second lever to raise the cost of credit to firms and households and, in theory, slow the pace of price increases.
With U.S. inflation "very high" and the unemployment rate now just 3.9%, Fed Chair Jerome Powell and his colleagues "will talk up the economy without sounding apocalyptic on inflation and prepare the ground for a March liftoff" of interest rates, Cornerstone Macro economist Roberto Perli wrote in a note ahead of the decision. They are likely to continue debating how and when to reduce the central bank's massive holdings of Treasury bonds and mortgage-backed securities as a further way to tighten monetary policy, but not announce a decision today.
Powell is due to begin a news conference half an hour after the release of the statement. Fed officials will not provide updated economic and interest rate projections on Wednesday, so it will be up to Powell to elaborate on how the central bank's views align with investors who are expecting a more vigorous fight against inflation, and who have sold off U.S. stocks and begun raising long-term
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