Fed could raise interest rates faster than expected: minutes

Members of the Federal Open Market Committee (FOMC) of the United States Federal Reserve said the country’s labor market was “very tight,” so the central bank might need to not only raise its interest rates ahead of time, but also reduce your asset holdings to control the high levels of inflation you are going through, according to the minutes of the last meeting.

“Participants generally noted (…) that it may be justified to increase the federal funds rate earlier or at a faster rate than participants previously anticipated,” the minutes of the December 14-15 meeting showed. .

Meanwhile, some of the participants also pointed out that it might be appropriate to start reducing the size of the Fed’s balance sheet earlier, after the start of the federal funds rate hike.

The minutes offered more details on the Fed’s shift to tougher monetary policy last month. Policymakers agreed to accelerate the end of its pandemic-era bond-buying program and issued forecasts anticipating three quarter-percentage-point rate hikes during 2022.

In addition, the minutes showed that the Federal Reserve was not only debating an initial rate increase, but also whether to use a second lever to curb inflation by allowing its holdings of US Treasuries and mortgage-backed securities to fall.

The December meeting was held amid a rebound in Covid-19 cases, in the face of the new Omicron variant, which has reached several countries and impacted on contagion cases.

There have been no comments yet from senior Fed officials indicating whether the changing health situation has altered their views on proper monetary policy.

Fed Chairman Jerome Powell will appear before the Senate Banking Committee next week at a hearing on his nomination for a second term as central bank chairman, and is likely to update his views on the economy.

Upcoming appointments

Joe Biden, the president of the United States, could announce the candidates for three top positions on the Fed’s Board this week, according to a source familiar with the process; However, he warned that the president has not made a final decision.

Topping the list of candidates for governor’s office are Lisa Cook, an economics professor at Michigan State University, and Philip Jefferson, vice president for academic affairs at Davidson College in North Carolina.