Hike rates

Fed may need to raise rates faster and shrink balance sheet quickly, minutes say

WASHINGTON : Federal Reserve officials said last month that the U.S. labor market was “very tight” and may need the U.S. central bank to not only raise interest rates sooner than expected, but also cut its global holdings to rein in high inflation, according to the minutes of their Dec. 14-15 Policy Meeting.

“Participants generally noted … that it might become warranted to raise the federal funds rate sooner or at a faster pace than participants had previously anticipated. Some participants also noted that it might be appropriate to begin reducing the size of the Federal Reserve’s balance sheet relatively soon after it began raising the federal funds rate,” the minutes read.

The minutes, which were released on Wednesday, offered more details on the Fed’s shift last month toward more hawkish monetary policy. Policymakers agreed to accelerate the end of their pandemic-era bond-buying program and released forecasts of rate hikes of three-quarters of a percentage point in 2022.

The minutes showed that the Fed was debating not only an initial rate hike, but also whether to use a second lever to rein in inflation by allowing its holdings of US Treasuries and securities backed by mortgage loans to decline.

The December meeting came as the number of coronavirus cases began to climb due to the spread of the Omicron variant.

Infections have soared since then, and there has been no comment yet from senior Fed officials on whether the evolving health situation has altered their view on appropriate monetary policy.

Fed Chairman Jerome Powell will appear before the Senate Banking Committee next week for a hearing on his nomination for a second four-year term as head of the central bank, and will likely update his views on the economy at that time.

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