At a meeting earlier this month, Federal Reserve officials expressed concern about inflation and said they would be willing to raise interest rates if prices continue to rise.
The committee that sets interest rates for the Fed on Wednesday released the minutes of the November session where it first signaled that it could call back all the financial aid it has provided during the pandemic.
The summary of the meeting indicates a lively discussion about inflation, where members emphasize the willingness to act if conditions continue to warm up.
“Various participants noted that the committee should be prepared to adjust the pace of asset purchases and increase the target area for federal funds rates faster than participants tentatively expected if inflation continued to run higher than levels in line with the committee̵[ads1]7;s targets,” the minutes said. .
Officials stressed a “patient” approach to incoming data, which has shown that inflation has been at its highest pace in more than 30 years.
But they also said they “would not hesitate to take appropriate action to meet the inflationary pressures that posed a risk to its long-term price stability and employment targets.”
Following the two-day session, which ended Nov. 3, the Federal Open Market Committee indicated that it would begin cutting back on its monthly bond purchase program, which had given it at least $ 120 billion in government bonds and mortgage-backed securities.
The goal of the program was to keep money flowing in these markets while maintaining broader interest rates at low levels to increase economic activity.
Federal Reserve Chairman Jerome Powell attends the House Financial Services Committee hearing on Capitol Hill, Washington, USA, September 30, 2021.
Al Drago | Reuters
In its statement after the meeting, the FOMC said that “significant further progress” in the economy would allow a reduction of $ 15 billion a month in purchases – $ 10 billion in treasuries and $ 5 billion in MBS. The statement said that the schedule will be maintained through at least December and is likely to continue until the program is phased out – probably in late spring or early summer 2022.
The minutes noted that some FOMC members wanted an even higher pace to give the Fed room to raise interest rates faster.
“Some participants suggested that it might be justified to reduce the rate of net asset purchases by more than $ 15 billion each month, so that the committee would be in a better position to make adjustments to the target area for federal funds rates, especially in light of inflation. pressure », it was stated in the minutes.
This is important because inflation has become even warmer since the November meeting. In previous cycles, the Fed has raised interest rates to cool the economy, but officials have said they are willing to keep inflation warmer than normal to improve employment.
However, the markets expect a more aggressive Fed.
Traders in contracts that focus on the future of short-term interest rates indicate that the Fed will increase its reference rate three times in 2022 at intervals of 25 basis points, although the current official estimate is no more than one increase next year. However, these markets are volatile and may change rapidly depending on the signals sent by the Fed.
FOMC members expressed concern at the meeting that the continued high inflation reading could affect public perception and “expectations were less well anchored” to the Fed’s 2% long-term target.