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Fed Minutes Flag Chance of Earlier Hikes, Balance-Sheet Rundown

2/2 © Bloomberg. A vehicle passes by the Marriner S. Eccles Federal Reserve building in Washington, D.C. Photographer: Stefani Reynolds/Bloomberg 2/2

(Bloomberg) — Federal Reserve officials said a strengthening economy and higher inflation could lead to earlier and faster interest-rate increases than previously expected, with some policy makers also favoring starting to shrink the balance sheet soon after.

“Participants generally noted that, given their individual outlooks for the economy, the labor market, and inflation, it may become warranted to increase the federal funds rate sooner or at a faster pace than participants had earlier anticipated,” according to minutes of the Dec. 14-15 meeting of the U.S. central bank’s policy-setting Federal Open Market Committee, published Wednesday.

“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,” the minutes said. 

At the conclusion of the December meeting, the FOMC announced it would wind down the Fed’s bond-buying program at a faster pace than first outlined at the previous meeting in early November, citing rising risks from inflation. The new schedule puts the central bank on track to conclude purchases in March.

Fed officials were also unanimous in expecting they would need to begin raising rates this year, according to anonymous projections published after the meeting. That marked a shift from the previous round of forecasts in September, which had shown the FOMC at the time was evenly divided on the question.

©2022 Bloomberg L.P.

Fed Minutes Flag Chance of Earlier Hikes, Balance-Sheet Rundown

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