Fed members ready to raise interest rates if inflation continues to run high, meeting minutes show

Federal Reserve officials raised concerns over inflation during their recent meeting. They said that they were willing to hike interest rates in the event of rising prices.

On Wednesday, the Fed’s interest rate setting committee released minutes of the November session in which it indicated that it might be reducing the amount it provided during the pandemic.

Summary of the meeting indicates lively discussions about inflation. Members stress their willingness to take action if things heat up.

The minutes noted that “Several participants suggested that the Committee be ready to increase the target range of the Federal Funds Rate and adjust the pace at which asset purchases are made faster than currently expected if inflation continues to rise above levels compatible with its objectives.”

Officials encouraged “patience” in dealing with incoming data. The result has been inflation running at the highest rate for more than 30 years.

They also stated that they will “not hesitate” to respond to inflation pressures that could pose risks for its long-term price stability and employment goals.

After the Nov. 3 session, the Federal Open Market Committee stated that they will be reducing the amount of monthly bond buying that saw it purchase $120 billion worth Treasurys and mortgage-backed Securities.

This program had two goals: to maintain money flow in these markets and to lower interest rates to stimulate economic activity.

Jerome Powell (Federal Reserve Chairman) attends the House Financial Services Committee hearing at Capitol Hill in Washington on September 30, 20,21.
Al Drago | Reuters

FOMC’s post-meeting statement stated “substantial further advances” in the economy will allow $15 billion per month in reductions in purchases, $10 billion in Treasurys and 5 billion MBS. The statement said that schedule would be maintained through at least December and probably continue going forward until the program wound down – likely by late spring or early summer 2022.

In the minutes, it was noted that FOMC members wanted a quicker pace to enable the Fed to raise rates sooner.

According to minutes, “Some participants suggest that decreasing the pace at which net assets are purchased by more than $15billion per month might be justified so that the Committee could make adjustments to target ranges for the federal funds rates in light inflation pressures.”

Because inflation has increased since November’s meeting, this is crucial. Although the Fed raised interest rates in previous cycles to cool down the economy, officials indicated that they would be willing to let inflation run higher than normal for the sake of improving the employment outlook.

The markets, however, anticipate a Fed more aggressive.

Contract traders that place bets on the future rate of short-term interest rates believe the Fed will increase its benchmark rate by three times per year in 2022 at 25 basis point intervals. But, current projections do not show any more than one rise next year. These markets can be volatile, and could change rapidly depending on what signals are sent by the Fed.

FOMC members raised concerns at the meeting about how the Fed’s continued inflation readings might influence public perceptions and that “expectations were being less well-anchored” to its 2% target over the longer term.

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