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Economy3 hours ago (Jan 13, 2022 08:17AM ET)

© Reuters. FILE PHOTO: Shoppers wear protective face mask as they walk down 5th Avenue as new New York State indoor masking mandates went into effect amid the spread of the coronavirus disease (COVID-19) in New York City, New York, U.S., December 13, 2021. REUTERS/M

(Reuters) – The U.S. Federal Reserve could begin lifting interest rates from their current level near zero as early as March and may well have to raise borrowing costs throughout this year to help rein in inflation, Philadelphia Fed President Patrick Harker said on Thursday.

“I expect us to complete our taper of asset purchases by March. Then, we can probably expect a rate hike of 25 basis points,” Harker said in prepared remarks to a virtual event hosted by the Philadelphia Business Journal.

“We could very well continue to raise rates throughout the year as the data evolve,” Harker added, as the central bank prepares to more swiftly dial back stimulus it put in place almost two years ago to nurse the economy through the COVID-19 pandemic.

Earlier on Thursday, Harker said in an interview with the Financial Times that he would currently support three interest rate hikes this year, starting from March, and would be open to more if inflation worsens.

Harker’s backing adds to a steady drumbeat of Fed policymakers this week who have signaled that a March interest rate rise is now firmly on the table with inflation near a 40-year high and well above the central bank’s 2% flexible target, and employment closing in on pre-pandemic levels.

Investors currently see a 83% probability that the Fed will raise its benchmark overnight lending rate, still set at the near-zero level, at its March 15-16 policy meeting, according to CME Group’s FedWatch program.

Earlier this week, Fed Chair Jerome Powell also threw his weight behind a firm tightening of monetary policy this year, arguing the strong economy, despite the surge in cases due to the Omicron variant, no longer “needs or wants” as much stimulus as he flagged coming rate hikes as a reduction in the Fed’s $8 trillion balance sheet.

As a precursor to raising interest rates, the Fed has already accelerated the reduction of its monthly purchases of Treasuries and mortgage-backed securities, introduced to support the pandemic-hit economy. It is now set to finish tapering that program completely by mid-March.

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