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 later tonight after a two-day meeting, won’t commit the US central bank to a particular course of action when its rate-setting committee meets again in seven weeks.

But in the absence of a marked change in the course of the economy the Fed is likely at its March meeting to start withdrawing its pandemic-era support, banking that a combination of higher interest rates and a smaller central bank presence in financial markets will help slow the pace of price increases.

The meetings before such policy actions are typically used to telegraph what's coming.

With US inflation “very high” and the unemployment rate now just 3.9 per cent, 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 also 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.

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 US stocks and begun raising long-term interest rates this month as a result. Reuters

The Fed is expected on Wednesday to keep its benchmark overnight interest rate unchanged at the near-zero level.

Trading on Wall Street this week has been notably volatile, and the S&P 500 index is down about 8 per cent this year. That, along with the rise in market rates for things like home mortgages, will force Powell to walk a line between wanting to keep the economic recovery on track while also affirming that control of inflation is currently the Fed’s first priority.