The head of the US central bank yesterday warned that officials could raise the interest rate farther and faster than previously expected in order to stabilise prices.
US stocks fell and the dollar rose following the remarks by chair of the Federal Reserve Jerome Powell just a few weeks before the bank is due to make another rate announcement.
The BBC says many analysts had been expecting another 0.25% increase, but the comments suggest the bank could move more aggressively.
Over the last year, the Fed has raised its benchmark rate to 4.5%-4.75% - the highest rate since 2007 - responding to prices rising at the fastest pace in decades.
The Bank of England will be closely watching developments across the Atlantic. The UK interest rate is currently 4% and the next meeting of the bank's monetary police committee is on March 23.
Inflation in the US stood at 6.4% in January.
Stalling
While that is lower than it was, it remains far higher than the 2% rate considered healthy, and Mr Powell said officials have been worried by recent data suggesting that progress could be stalling.
He said that could push the bank to lift rates above the 5%-5.5% officials had forecast in December.
Raising borrowing costs is one mechanism to slow price increases in the wider economy.
"The latest economic data has come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated," Mr Powell said in Congress during the first of two days of testimony on the economy.
"If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes," he added.
The comments generated some pushback from lawmakers, especially those on the left.
Slowdown
They said the moves would do little to address causes of the inflation problem - such as the war in Ukraine and supply-chain issues - while leading to an economic slowdown that will throw millions of people out of work.
Mr Powell said the economy would be in worse shape if the bank did not act.
US prices jumped an unexpected 0.5% from December to January, while monthly updates on retail sales and hiring have also been stronger than expected.
"The upshot is that, not only are interest rates set to rise higher than we previously anticipated, but there is a lot less scope for rate cuts later this year than we had originally thought," said Andrew Hunter, deputy chief US economist for Capital Economics.
FTSE 100
The UK's top share index, the FTSE 100, fell 16 points at 7,902 shortly after opening this morning, following yesterday's 10-point loss.
Brent crude futures were down 0.32% at $83.02 a barrel.
Companies reporting today
- Full-year results: Admiral, Hiscox, Ibstock, Legal & General, Tullow Oil.