U.S. Federal Reserve officials signaled this week that the central bank could start raising interest rates in March as U.S. annual inflation surged to an almost 40-year high in December.

 

"Inflation is too high and working people around the country are concerned about how far their paychecks will go," Fed governor Lael Brainard said Thursday at a hearing before the Senate Banking Committee.

 

"Our monetary policy is focused on getting inflation back down to 2 percent while sustaining a recovery that includes everyone. This is our most important task," said Brainard, President Joe Biden's nominee to serve as the central bank's vice chair.

 

"We've already decided to end asset purchases in the first quarter. You've seen that the committee has projected several hikes over the course of the year," she said, signaling that the central bank could start raising rates as soon as March.

 

"We will be in a position to do that, I think, as soon as asset purchases are terminated. And we will simply have to see what the data requires over the course of the year," she said.

 

The Fed is on track to conclude its asset purchase program in mid-March as it exits from the ultra-loose monetary policy enacted at the start of the pandemic.

 

Loretta Mester, president of the Federal Reserve Bank of Cleveland, believed that it's "a compelling case" for the central bank to raise the federal funds rate from the current record-low level of near zero at its March 15-16 meeting.

 

"If things looked like they do today in March, I would support ... lifting off from zero at that point," Mester said Wednesday at The Wall Street Journal CFO Network Summit.

 

"To my mind there's a really compelling case that we move off of that extraordinary accommodation that was needed during the early parts of the pandemic," she added.

 

Patrick Harker, president of the Federal Reserve Bank of Philadelphia, also said that he would support a rate hike in March.

 

"My forecast is that we would have a 25 basis-point increase in March, barring any changes in the data," Harker said Thursday at a virtual event.

 

Fed governor Christopher Waller said he still thought it was reasonable to expect three rate hikes this year.

 

"Three hikes is still a good baseline; we will have to wait and see what inflation looks like in the second half of the year," Waller told Bloomberg Television on Thursday.

 

"If it continues to be high, the case will be made for four, maybe five, hikes," Waller said.

 

Fed Chair Jerome Powell also said on Tuesday that the central bank would have to raise rates more if inflation remains elevated.

 

"If we see inflation persisting at high levels longer than expected ... if we have to raise interest rates more over time, we will," Powell told lawmakers.

 

The consumer price index rose 7 percent in December from a year earlier, the largest 12-month increase since June 1982, according to the U.S. Labor Department.

 

Fed officials' median interest rate projections released mid-December showed that the central bank could raise rates three times this year, up from just one rate hike projected in September.

 

"But if inflation falls back in the second half of the year, as many of us think it will ... then you could actually pause and not even go the full three," Waller said.

 

Economists at Goldman Sachs said recently in a note that they expected the Fed to raise rates four times this year, one more than previously forecast, due to persistently high inflation combined with a labor market near full employment.