Federal Reserve officials expressed concern about inflation at their meeting earlier this month and said they were ready to hike interest rates if prices continue to rise.
The committee that sets interest rates for the Fed on Wednesday released the minutes of the November meeting, which first signaled that it could recall all of the economic aid it provided during the pandemic.
The session summary suggests a lively discussion on inflation, with members emphasizing a willingness to act if conditions continue to heat up.
“Various participants noted that the committee should stand ready to adjust the pace of asset purchases and raise the federal funds rate target earlier than currently expected if inflation remains above the committee’s targets,” the minutes read.
Officials stressed a “patient” approach to incoming data, which has shown inflation to be the highest in more than 30 years.
However, they also said they would “not hesitate to take appropriate action to counter inflationary pressures that pose risks to longer-term price stability and employment goals”.
After the two-day meeting, which ended on November 3, the Federal Reserve Open Markets Committee announced that it would begin cutting back on the monthly bond-buying program that bought treasuries and mortgage-backed securities worth at least $ 120 billion.
The aim of the program was to maintain the flow of money in these markets while keeping broader interest rates low in order to stimulate economic activity.
Federal Reserve Chairman Jerome Powell attends the House Financial Services Committee hearing on Capitol Hill in Washington, United States, on September 30, 2021.
Al Drago | Reuters
In its post-meeting statement, the FOMC said “significant further advances” in the economy would allow a $ 15 billion monthly reduction in purchases – $ 10 billion at Treasurys and $ 5 billion at MBS. The statement said the schedule will be maintained through at least December and likely to continue until the program is completed – likely in late spring or early summer 2022.
Minutes noted that some FOMC members wanted an even faster pace to give the Fed headroom to raise interest rates earlier.
“Some participants suggested that reducing the pace of net asset purchases by more than 15 billion pressure,” the minutes read.
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This is important because inflation has gotten even hotter since the November meeting. In previous cycles, the Fed has hiked rates to cool the economy, but officials have said they are ready to run inflation hotter than normal in order to improve employment.
However, the markets are expecting a more aggressive Fed.
Contract traders betting on the future of short-term rates say the Fed will hike its key rate three times at 25 basis point intervals in 2022, despite the latest official forecasts for next year no more than one hike. However, these markets are volatile and can change quickly depending on signals from the Fed.
FOMC members expressed concern at the meeting that persistently high inflation data could affect public perception and that “expectations have become less anchored” to the Fed’s longer-term target of 2%.