The U.S. Federal Reserve (Fed) kept its benchmark interest rate unchanged on Wednesday at a record-low level near zero amid surging inflation.

The Fed signaled that the central bank is ready to raise interest rates as soon as March to combat surging inflation as it exits from the ultra-loose monetary policy enacted at the start of the pandemic.

"Supply and demand imbalances related to the pandemic and the reopening of the economy have continued to contribute to elevated levels of inflation," the Fed said in a statement after a two-day meeting.

"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, referring to the Federal Open Market Committee (FOMC), the Fed's policy-making committee.

The central bank has pledged to keep its federal funds rate unchanged at the record low level of near zero for roughly two years. But many Fed officials have expressed in recent weeks that they would be comfortable with a rate increase in March due to elevated inflation pressures.

"Powell made it as clear as possible that the Fed was willing to start raising interest aggressively, starting as soon as the next FOMC meeting and continue doing so until inflation showed signs of falling," said Matt Weller, global head of research at GAIN Capital, in a note.

At a virtual press conference Wednesday afternoon, Fed Chair Jerome Powell said the U.S. economy "no longer needs sustained high levels of monetary policy support" due to the remarkable progress in the labor market and higher inflation.

"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, adding inflation risks are "still to the upside" in the views of most Fed officials.

"We will use our tools both to support the economy and a strong labor market and to prevent higher inflation from becoming higher entrenched and watching carefully to see whether the economy is evolving in line with expectations," he said.

The central bank also decided to continue to reduce the monthly pace of its net asset purchases, bringing them to an end in early March.

Weller said markets took these comments as a signal that tighter policy was coming. 

"The U.S. dollar and short-term treasury yields are both rising in tandem, with the two-year treasury yield rising to 1.12 percent, its highest level since February 2020. Meanwhile, U.S. indices are falling on the day to erase earlier rises, as are more risk-appetite-sensitive currencies like the Australian and New Zealand dollars," he said.

(With input from Xinhua)