The Federal Reserve prepares to raise interest rates

Why might US interest rates rise this year?

2:37

(CNN Business) ––

The Federal Reserve is preparing to raise interest rates, the central bank said in its monetary policy update on Wednesday.

However, it has kept rates close to zero for now.

"With inflation well above 2% and a strong labor market, the committee expects it will soon be appropriate to raise the target range for the fed funds rate," the Fed statement read.

The central bank cut rates to near zero in March 2020 as the pandemic choked the US economy.

Last month, the Federal Reserve hinted that it would raise interest rates several times throughout 2022. Investors expect the first increase to come at the next Fed meeting in March.

Market expectations for a March rate hike were at nearly 90% as of Wednesday afternoon, according to the CME FedWatch tool.

In November, the Fed also announced the end of its pandemic-era stimulus and accelerated the reduction of its asset purchases the following month.

Federal Reserve