Fed ready to raise interest rates if inflation continues to be high, minutes show

Federal Reserve officials at their meeting earlier this month expressed concerns about inflation and said they would be willing to raise interest rates if prices continue to rise.

The Fed’s rate-setting committee on Wednesday released minutes from its November meeting, where it signaled for the first time that it could roll back all of the economic help it provided during the pandemic. .

The meeting summary showed a lively discussion on inflation, with members stressing their readiness to act should conditions continue to heat up.

Many participants noted that the Committee should be prepared to adjust the pace of asset purchases and raise the target range for the federal funds rate earlier than participants currently anticipate if inflation continues to run high. than is consistent with the objectives of the Commission,” the minutes stated.

Officials emphasized a “patient” approach to incoming data, which shows inflation is at its highest pace in more than 30 years.

But they also said they would “not hesitate to take appropriate actions to address inflationary pressures that jeopardize long-term employment and price stability objectives.”

After a two-day session that ended on November 3, the Federal Open Market Committee said it would begin cutting its monthly bond-buying program that it bought at least $120 billion in Treasuries. and mortgage-backed securities.

The goal of the program is to keep money flowing into those markets while keeping broader interest rates low to spur economic activity.

Federal Reserve Chairman Jerome Powell attends a House Financial Services Committee hearing on Capitol Hill in Washington, U.S., September 30, 2021.

Al Drago | Reuters

In its post-meeting statement, the FOMC said “further substantial progress” in the economy would allow for a $15 billion reduction in purchases per month – $10 billion in Treasuries and $5 billion in MBS . The statement said that schedule will be maintained through at least December and will likely continue until the program ends – possibly in late spring or early summer 2022.

The minutes noted that some FOMC members wanted an even faster pace to give the Fed time to raise rates sooner.

“Several participants suggested that a slowdown in net asset purchases of more than $15 billion per month could be warranted so that the Commission would be in a better position to make a target range adjustment for the rate federal funds, especially amid inflationary pressures,” the minutes said.

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That matters because inflation has been even hotter since its November meeting. In previous cycles, the Fed has raised interest rates to cool the economy, but officials say they are willing to let inflation pick up. higher than normal to improve the employment picture.

However, the market is anticipating the Fed to be more aggressive.

Traders in contracts betting on the future of short-term rates are suggesting the Fed will raise its benchmark rate three times in 2022 in 25 basis time periods, despite current official projections being no more than one increase in the next year. However, those markets are volatile and can change rapidly depending on the signals the Fed sends.

FOMC members expressed concern at the meeting that continued high inflation figures could affect public perception and that “expectations are becoming less stable” for the long-term 2% target of the Fed. Fed ready to raise interest rates if inflation continues to be high, minutes show

Sarah Ridley

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