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The Federal Reserve raised interest rates by half a percentage point and announced a plan to shrink its massive bond holdings.
The Fed raised its interest rate for the first time in over a decade on Wednesday, and it also reduced its balance sheet. As money becomes more expensive to borrow, the policies are likely to spread through markets and the economy.
The central bank is getting serious about cooling down the economy and job market as rapid inflation persists and as officials grow nervous that it could become more permanent, so the quick withdrawal of monetary help is a sign. Prices have been increasing at a rapid pace for months.
The Fed is moving quickly to bring inflation down, according to the chair.
He said that policymakers could increase rates by larger than normal increases.
Mr. Powell said there was a broad sense on the committee that additional 50 basis point increases should be on the table at the next couple of meetings.
As supply shortages moderated and the economy began to recover from early-pandemic disruptions, policymakers spent much of the year hoping that inflation would ease on its own. Inflation has only increased, and has yet to return to normal. Prices for goods, food and fuel are going up because of the war in Ukraine. Wages are rising rapidly in the United States, which feeds into higher prices for services as consumer demand remains strong.
The invasion of Ukraine is likely to create additional upward pressure on inflation, as well as the supply chain disruptions in China, which are likely to weigh on economic activity.
The Fed said that inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures.
Fed officials have decided that they no longer have the luxury of waiting for inflation to moderate on its own, and are expected to continue raising rates at their meetings throughout the year, with many investors expecting large increases in June and July. Mr. Powell said that the committee is not considering a 0.75 percentage point increase.
While the Fed acknowledged that inflation may remain fast as China supply disruptions and the war in Ukraine heighten price pressures, some analysts doubted that would warrant an even larger move.
The Fed is trying to tell the market that inflation could go up in the near term.
It's difficult to decide how quickly to remove policy support. Central bankers want to arrest the rise in prices without causing the economy to go into a recession. A soft landing is likely to be a challenge.
The Fed will allow securities to mature without reinvestment in June. It said on Wednesday that it will let up to $60 billion in Treasury debt expire each month. As of September, that plan will have been phased in.
The Fed's plan to reduce its holdings is likely to take steam out of financial markets and could help to cool the housing market as it lifts longer-term borrowing costs, reinforcing the effect of the central bank's interest rate increases. The Fed's anticipated moves have begun to push mortgage rates higher.
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