Breaking: FOMC minutes say most participants suggested a faster pace of interest rate increases versus 2015

Breaking: FOMC minutes say: The minutes of the 25-26 January FOMC meeting, released on Wednesday, said that most participants suggested that a faster pace of increases in the target rate for the Federal Funds rate than in the post-2015 period would likely be warranted. 

Additional Takeaways

As summarised by Reuters…

  • Participants continued to stress that maintaining flexibility to implement appropriate policy adjustments on the basis of risk-management considerations should be a guiding principle.
  • Participants continued to judge that the committee’s net asset purchases should be concluded soon.
  • Many participants noted the influence on financial conditions of the committee’s recent communications and viewed these communications as helpful in shifting private-sector expectations regarding the policy outlook.
  • Most participants preferred to continue to reduce the committee’s net asset purchases according to the schedule announced in December, thus bringing them to an end in early March.
  • Participants emphasized that the appropriate path of policy would depend on economic and financial developments and their implications for the outlook and the risks around the outlook.
  • Most participants noted that, if inflation does not move down as they expect, it would be appropriate for the committee to remove policy accommodation at a faster pace than they currently anticipate.
  • Some participants commented on the risk that financial conditions might tighten unduly in response to a rapid removal of policy accommodation.
  • Removal of policy accommodation in the current circumstances depended on the timing and pace of both increases in the target range of the Federal Funds rate and the reduction in the size of the Federal Reserve’s balance sheet.
  • A couple of participants stated that they favored ending the committee’s net asset purchases sooner to send an even stronger signal that the committee was committed to bringing down inflation.
  • A number of participants commented that conditions would likely warrant beginning to reduce the size of the balance sheet sometime later this year.
  • Some participants commented on the risk that financial conditions might tighten unduly in response to a rapid removal of policy accommodation.
  • A few participants remarked that this risk could be mitigated through clear and effective communication of the committee’s assessments of the economic outlook, the risks around the outlook, and the appropriate path for monetary policy.
  • Participants anticipated that it would soon be appropriate to raise the target range for the Federal Funds rate.
  • Many participants commented that sales of agency MBS or reinvesting some portion of principal payments received from agency MBS into treasury securities may be appropriate at some point in the future.
  • Participants agreed that uncertainty regarding the path of inflation was elevated and that risks to inflation were weighted to the upside.

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