According to minutes from a meeting held earlier this month, Federal Reserve officials emphasized the need to raise interest rates too fast, maybe more than markets predict, in order to combat a developing inflation problem.
Not only did policymakers recognize the need to raise benchmark borrowing rates by 50 basis points, but they also predicted that comparable increases would be required in the coming meetings.
Fed minutes suggest interest rate hikes could come faster than the market expects https://t.co/lzSuSEc3SW
— Fox News (@FoxNews) May 26, 2022
The minutes from the Federal Reserve’s May 3-4 meeting were released on Wednesday, and they show that policymakers emphasized the need to raise interest rates fast in order to get consumer prices closer to the 2% target.
Officials voted unanimously earlier this month to raise the federal funds rate by 50 basis points, and they agreed that similar hikes will be considered at subsequent meetings in June and July.
“Most participants judged that 50 basis point increases in the target range would likely be appropriate at the next couple of meetings,” the minutes said.
The minutes continued, “many participants judged that expediting the removal of policy accommodation would leave the committee well-positioned later this year to assess the effects of policy firming and the extent to which economic developments warranted policy adjustments.”
Furthermore, policymakers said that in order to catch up with inflation, monetary policy may need to move beyond a “neutral” attitude — meaning it does neither hinder nor accommodate economic expansion — and officials may need to adopt a more “restrictive” stance.
According to the minutes, Fed policymakers “judged that it was important to move expeditiously to a more neutral monetary policy stance.” “They also noted that depending on the evolving economic outlook and the risks to the outlook, a more restrictive policy stance may become appropriate.”
Officials approved plans to begin shrinking the Federal Reserve’s enormous $9 trillion balance sheet, which nearly doubled in size during the recession as the central bank acquired mortgage-backed securities and other Treasury securities to keep borrowing costs low.
Officials said they’ll start winding down the balance sheet on June 1 at a combined monthly pace of $47.5 billion, tightening lending for American consumers even more. Over the next three months, the run-off rate will be increased to $95 billion.