Federal Reserve Chairman Jerome Powell on Wednesday all but confirmed that the central bank will raise interest rates in its next policy-setting meeting in mid-March, as the central bank continues to battle rising prices.

“I would say that the committee is of a mind to raise the federal funds rate at the March meeting, assuming conditions are appropriate for doing so,” Powell said in a press conference after the central bank opted to hold the short-term federal funds rate at near zero.

But the policy-setting Federal Open Market Committee unanimously agreed that “it will soon be appropriate to raise the target range for the federal funds rate,” and Powell’s commentary suggests the first increase will happen on March 16.

Questions remain over how aggressive the Fed will want to move in March. Following Powell’s press conference Wednesday, betting markets on the path of future Fed policy showed an 86% chance of a 25 basis point hike in that meeting. A notable 14% are predicting a 50 basis point hike. A double rate hike in one meeting hasn’t happened since May 2000.

Powell declined to say if a 50 basis point hike was on the table, and similarly deflected a question from Yahoo Finance on whether or not the path of rate increases would be gradual.

“I don’t think it’s possible to say exactly how this is going to go, and we’re going to need to be, as I’ve mentioned, nimble about this,” Powell said.

U.S. Federal Reserve Board Chairman Jerome Powell listens during his re-nominations hearing of the Senate Banking, Housing and Urban Affairs Committee on Capitol Hill, in Washington, U.S., January 11, 2022. Brendan Smialowski/Pool via REUTERS

For Powell and the other policymakers on the FOMC, the guiding star for how fast and how high to raise interest rates will remain inflationary pressures. The Fed chief said the pace of price increases has “gotten just a bit worse” since the last FOMC meeting in mid-December, showing the directionality of the Fed’s pivot toward wanting to tighten its policies.

The balance sheet

For the Fed, waiting until March despite 7.0% year-over-year increases in prices is the result of a technical process it is carrying out on its nearly $9 trillion balance sheet.

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Since the depths of the pandemic, the Fed has been absorbing trillions in U.S. Treasuries and agency mortgage-backed securities to message to markets its intention to keep interest rates low. In December, the Fed charted a course to allow that program to end by early March, after which rate increases would be fair game.

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At some point, the Fed would move to then shrink its asset holdings — likely by allowing maturing securities to “rolloff” of its balance sheet without any new securities being added. On Wednesday, the Fed clarified that it would prefer a rolloff strategy that would lead to a balance sheet with more U.S. Treasuries, as opposed to mortgage-backed securities.

But like interest rates, Powell insisted that the Fed wants to have optionality with how it undergoes that process. He said no decisions were made yet on the timing, pace or other details of any Fed balance sheet rolloff.

That has left Fed watchers guessing on when such a process would begin. Goldman Sachs research, for example, has floated the Fed’s July meeting as a possible starting point.

The Fed statement vaguely notes that the committee can “adjust any of the details of its approach to reducing the size of the balance sheet in light of economic and financial developments.” Powell said the Fed wants to avoid having to change its messaging on any Fed balance sheet rolloff, as it did in the later stages of the post financial crisis recovery.

“We’ve got a pretty robust paragraph there that says, ‘we’re free to do this at any time,’” Powell said.

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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