Although it's not the most likely scenario, Federal Reserve officials are discussing the possibility of raising interest rates if inflation accelerates.

The discussion of rate hikes is a departure from recent months, when the focus was on how soon and how much to lower them.

Fed officials are caught between the need to lower rates to boost the job market as hiring slows, or keeping them higher for longer to stifle inflation.

Policymakers at the Federal Reserve are discussing the possibility of rate hikes to address inflation, and at least one Fed official wants to put that in writing.

The possibility of rate hikes came up during the Fed's March policy meeting, Fed Chair Jerome Powell said. The committee decided to keep the central bank's key interest rate steady on Wednesday for the second meeting in a row.

Powell confirmed that a committee member had proposed including language in the policy committee's official statement about the risks to the central bank's dual mandate being "two-sided." That is, the Fed might have to raise interest rates to crush inflation or lower them to boost the job market.

"The possibility that our next move might be an increase did come up at the meeting, as it did at the last meeting," Powell said. "The vast majority of participants don't see that as their base case. And of course, we don't take things off the table."

Higher interest rates generally mean slower economic growth since borrowing money is costlier making hiring and expansion is more difficult for businesses.

Although Powell was clear that rate hikes aren't in the pipeline yet, even discussing them is a significant shift from recent months, when the question was when and by how much the Fed would cut interest rates. Since then, however, tariff-related inflation has proven more stubborn than expected, and the Iran war kicked off, sending energy prices soaring and threatening a fresh burst of inflation.

Financial markets have gotten that memo. On Wednesday, traders were pricing in a 3% chance of a rate hike at the Fed's next meeting in April, and a rate cut was not in the cards, according to the CME Group's FedWatch tool, which forecasts rate movements based on fed funds futures trading data.

The fed funds rate is the central bank's main policy tool for pursuing its dual mandate of keeping inflation low and employment high. The fed funds rate affects interest on all kinds of loans, and the central bank lowers it when it wants to push down borrowing costs to encourage spending and job creation. Central bankers raise it to discourage spending and subdue inflation.

Read the original article on Investopedia