Fed needs to hike rates faster, reduce balance sheet quickly, say FOMC Minutes



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Fed needs to hike rates faster, reduce balance sheet quickly, say FOMC Minutes

On Wednesday, minutes from the December 14-15 US Federal Reserve policy meet had unveiled that the US Fed policymakers had underscored an utterly squeezed labor market, while a majority of policymakers had highlighted an insinuation that the Central Bank might need to condense its overall assets to put the kibosh on a sky-scrapping inflation, illustrating that hiking rate thrice a year over 2022 and 2023 might not be sufficient to tame a swathe of soaring inflation indicators such as US CPI (Consumer Price Index), US PPI (Producers Price Index) alongside US core PCE (Personal Consumption Expenditure) price index among others.

Meanwhile, addressing to an earlier-than-anticipated bond taper program alongside an unpleasant requirement to reduce the Central Bank’s overall assets, minutes from Dec 14-15 US Fed policy meet had stated, “Participants generally noted ...

it may become warranted to increase the federal funds rate sooner or at a faster pace than participants had earlier anticipated. Some participants also noted that it could be appropriate to begin to reduce the size of the Federal Reserve’s balance sheet relatively soon after beginning to raise the federal funds rate”.

US Fed to hike rate faster, say FOMC Minutes

In point of fact, on December 14-15 policy meet of the US Federal Reserve, US Fed policymakers had hinted at least three rate hikes each on 2022 and 2023, while the US Central Bank also had accelerated its bond taper program, aiming to conclude it by March 2022 instead of a previously slated June 2022.

Nevertheless, the minutes from Dec 14-15 policy meets released late on Wednesday (GMT 19.00), had delivered more details about a sweeping shift in Fed’s monetary policy, as policymakers had agreed to quicken up the US Central Bank’s bond taper program, launched during the pandemic-led fiscal catastrophe earlier on 2020.

The minutes, in tandem, had unfurled that Fed policymakers were debating on whether they should approve a decline in US Fed’s holdings of US Treasury bonds alongside mortgage-backed securities to ease a lingering inflation-surge up to some extent aside from a faster rate-hike program.