The Fed hints it will soon raise interest rates as inflation lingers at its highest level since 1982

• The Federal Reserve said Wednesday it "will soon be appropriate" for it to raise its benchmark interest rate.
• The rate affects borrowing costs throughout the economy and is the Fed's main tool for cooling inflation.

The Federal Reserve offered its clearest sign yet that it's ready to raise interest rates as it looks to quash historically strong inflation.

The central bank announced on Wednesday it would hold its benchmark interest rate near zero and maintain its current pace for tapering emergency asset purchases. The purchase program is slated to end in early March, opening the door for the Fed to raise the benchmark rate as early as that month. While participants at the Federal Open Market Committee meeting didn't give a specific timeframe for its upcoming rate hikes, the Wednesday statement confirmed such action is near.

"With inflation well above 2 percent and a strong labor market, the Committee expects it will soon be appropriate to raise the target range for the federal funds rate," the Fed said following its policy meeting.

Separately, Fed Chair Jerome Powell gave the clearest sign yet that the first hike will arrive at the FOMC's next meeting.

"I would say the committee is of a mind to raise the federal funds rate at the March meeting assuming that conditions are appropriate for doing so," Powell said in a Wednesday press conference.

The Fed's interest rate is considered the country's most powerful tool for fighting inflation. Raising the rate leads banks and other lenders to lift their own interest rates, affecting everything from credit card payments to car loans. The central bank said in previous meetings that the economic recovery has progressed enough for it to pull back on some of its support and instead focus on cooling inflation.

"In light of the remarkable progress we've seen in the labor market and inflation that is well above our 2% longer-run goal, the economy no longer needs sustained high levels of monetary policy support," Powell said.

The Fed's latest economic projections – published in December – showed policymakers expecting to raise rates three times in 2022 and 2023. Yet inflation data published in the following weeks has fueled worries that the Fed's pace isn't aggressive enough to cool the price surge. The Consumer Price Index showed inflation running at a 7% year-over-year rate in December, accelerating from the prior month's 6.8% rate and marking the fastest price growth since 1982.

The report prompted several calls for more urgent monetary tightening. Goldman Sachs economists revised their base case on Saturday to include four rate hikes through 2022, citing extraordinarily strong wage growth and Omicron's impact on supply chains for the updated outlook.

JPMorgan CEO Jamie Dimon shared an even more hawkish outlook earlier in January. The chief executive told CNBC he'd be surprised with only four hikes in 2022, and said in a quarterly earnings call that the Fed could lift its benchmark rate as many as seven times over the next 11 months.

Fears of a quick pullback in emergency aid have fueled a massive sell-off in stocks over the last few weeks. Investors bracing for faster tightening pulled cash from risky assets, concerned the central bank's fight with inflation would knock stocks' appeal. The Nasdaq composite and the S&P 500 fell into correction territory in the days leading up to the FOMC meeting, though the benchmark indexes have since pared some losses.

Stocks rallied on news of the Fed's decision. The lack of specific timing for future hikes likely eased fears that the central bank will tighten faster than it previously signaled.