The US Federal Reserve is on course to raise interest rates at this month's meeting, according to chair Jerome Powell, despite the uncertainty following the attack on Ukraine.
But the chances of a rise from 0.25% to 0.75%, which was widely expected not long ago, have receded. Analysts are now forecasting an increase to 0.5% at the meeting on 16th March.
In his semi-annual testimony to Congress, Powell said: "With inflation well above 2 percent and a strong labor market, we expect it will be appropriate to raise the target range for the federal funds rate at our meeting later this month."
He added: "Reducing our balance sheet will commence after the process of raising interest rates has begun, and will proceed in a predictable manner primarily through adjustments to reinvestments."
But he said the bank was monitoring the situation in Ukraine closely.
He added; "The near-term effects on the US. economy of the invasion of Ukraine, the ongoing war, the sanctions, and of events to come, remain highly uncertain. Making appropriate monetary policy in this environment requires a recognition that the economy evolves in unexpected ways. We will need to be nimble in responding to incoming data and the evolving outlook."
AJ Bell investment director Russ Mould said: "Markets are busily dialling back their expectations for how far and fast [the Fed] will take headline borrowing costs in America this year.
“This is not because inflation expectations are moving down - quite the opposite. But it may be because of concerns that higher fuel and energy prices, will hit economic growth. It may also factor in any worries over financial market volatility, although the Fed’s mandate covers jobs and inflation and not share prices – and it would be a bad look for the central bank to make a big thing about supporting financial markets at a time when many in society are getting hit hard by inflation and the Fed is mired in an insider trading scandal.
“According to the CME Fedwatch tool, markets are now putting barely a 2% chance on a half-percentage-point rate rise at the next meeting of the Federal Open Markets Committee. That compares to a 33% chance just a week ago and 50% and more in early February.
“Russia’s invasion of Ukraine, its impact on global energy prices, potential to fuel inflation and possible hit to economic growth as economic sanctions take effect is clearly prompting a shift in investors’ expectations.
“Markets now expect a quarter-point increase to 0.50%."