The minutes of the FOMC meeting of January 25 and 26, released Wednesday, said most participants suggested a faster pace of target rate increases for the fed funds rate would likely be warranted than in the post-2015 period.
Additional statements – Reuters
Members continued to emphasize that maintaining the flexibility to implement appropriate policy adjustments based on risk management considerations should be a guiding principle.
Participants believe 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 changing private sector expectations regarding the policy outlook.
Most members preferred to continue reducing the committee’s net asset purchases according to the schedule announced in December, bringing them to an end in early March.
Participants emphasized that the appropriate policy path would depend on economic and financial developments and their implications for the outlook and risks around the outlook.
Most participants noted that if inflation does not come down as expected, it would be appropriate for the committee to undo accommodative policy at a faster rate than they currently anticipate.
Some members commented on the risk that financial conditions could tighten unduly in response to a rapid removal of accommodative policy.
The removal of accommodative policy in the current circumstances depended on the timing and pace of increases in the target range of the fed funds rate and reduction in the size of the Fed’s balance sheet.
A couple of participants stated that they were in favor of ending the committee’s net asset purchases sooner to send an even stronger signal that the committee was committed to reducing inflation.
Several participants commented that conditions would likely warrant starting to downsize the balance sheet sometime later this year.
Some participants spoke about the risk that financial conditions could tighten unduly in response to a rapid removal of accommodative policy.
Some members commented that this risk could be mitigated through clear and effective communication of the committee’s assessments of the economic outlook, risks to the outlook, and the appropriate path for monetary policy.
Members anticipated that it would soon be appropriate to raise the target range for the Federal Funds rate.
Many participants commented that agency MBS sales or reinvestment of a portion of principal payments received from agency MBS in treasury securities may be appropriate at some point in the future.
Participants agreed that uncertainty regarding the path of inflation was high and risks to inflation were weighted to the upside.
Some participants noted that asset valuations rose in a variety of markets, raising concerns that a major realignment could contribute to a future recession.
Some participants pointed to the possibility that structural factors that had contributed to low inflation in the previous decade could resurface after the pandemic subsides.
Uncertainty about actual activity was also considered high.
Several participants pointed to downside risks to the outlook, including a possible worsening of the pandemic, the possibility of heightened geopolitical tensions, or a substantial tightening of financial conditions.
A couple of lawmakers considered that prolonged accommodative financial conditions could be contributing to financial imbalances. A couple of others thought high asset valuations might be less of a threat to financial stability.
Many members commented that they considered that labor market conditions were already at or very close to being consistent with maximum employment.
A couple of members commented that, in their opinion, the economy had probably not yet reached the maximum level of employment
.
Several participants mentioned developments that had the potential to put additional upward pressure on inflation, including real wage growth outpacing productivity growth and increases in prices for housing services.
Some policymakers saw emerging risks to financial stability due to the rapid growth of crypto assets and decentralized finance platforms.
Participants generally expected inflation to moderate over the year as supply-demand imbalances diminish and monetary policy accommodation is undone.
Some participants commented that longer-term measures of inflation expectations appeared to remain well anchored.
Policymakers saw widespread evidence that the labor market was very tight.
market reaction
The immediate market response to the latest minute release has been subdued, with the US Dollar Index falling to daily lows around the 95.70 level from above 95.80 before the release.
Source: Fx Street
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