US Federal Reserve officials agreed that, with inflation amplifying its impact on the economy and a strong labor market, it was time to tighten monetary policy, but also that decisions would depend on an analysis of data from the each meeting, according to the minutes of the meeting held on January 25 and 26, published on the afternoon of this Wednesday (16). This was the first of eight group meetings planned for this year.
Fomc (the Fed’s monetary policy committee) members agreed that the target interest rate would likely have to rise at a “faster pace” than when the Fed last raised rates in 2015, the record says.
But “even so, participants emphasized that the proper path of monetary policy would depend on the unfolding of economic and financial factors and their implications for the outlook and the risks surrounding the outlook,” the minutes said.
Participants “will update their assessments of the appropriate configuration for the monetary policy stance at each meeting,” as policymakers consider both interest rate hikes and plans to reduce Fed asset holdings.
The document provides a more detailed mosaic of last month’s meeting, at which policymakers agreed that it would “soon be appropriate” to raise the Fed’s one-day interest rate from its near-zero level and also discussed plans to cut the nearly $9 trillion stockpile of bonds held by the central bank.
Investors currently expect the Fed to start raising interest rates in March with an initial 50-percentage point hike and to continue raising rates throughout the year.
Economic indicators since the beginning of this year have reinforced the Fed’s readiness to act. January retail sales came in strong, and US employers created 467,000 new jobs last month, far more than expected. The most recent inflation data showed no signs of retreating from the highest level in 40 years.
Monetary policymakers last month also discussed plans to reduce the Fed’s holdings of US Treasuries and mortgage-backed securities and issued a set of broad principles to guide the reductions.
They must now define the specifics of how much reduction will be allowed each month and when that should start.
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