The Fed expects to raise interest rates sooner and at a faster pace – monetary policy

At its last monetary policy meeting, held on December 14 and 15, the US Federal Reserve, led by Jerome Powell (pictured), announced that it would double the taper rate, and the possibility of raising interest rates three times this year and three more times in the next was indicated.

According to the minutes of the meetingAnd, just, members of the Federal Reserve’s Federal Open Market Committee (FOMC) have hinted that a major interest rate hike may start earlier and be faster than expected. This rate increase may start as early as March

“Participants generally emphasized that — given their individual views on the economy, labor market and inflation — it would be better to raise the federal funds rate earlier, and at a faster pace, than previously expected,” the minutes said.

According to the document released today, the meeting participants also estimate that supply disruptions may persist for a longer period, as well as inflationary pressures, but they do not expect the omicron variable of the Corona virus to alter the course of the recovery.

The document also reveals that several FOMC members advocate an acceleration of the Fed’s balance sheet reduction, causing debt interest rates to rise. US 10-year Treasury yields continue to climb to their highest levels in May last year at 1.703%. Already the dollar reacts less. The exchanges, too, are ceding more land on Wall Street.

Accelerate the tapers

It should be remembered that as part of the stimulus to the economy during the pandemic, the Federal Reserve began spending billions of dollars in asset purchases, which in the meantime reduced them to 120 billion dollars per month. In November and December 2021 it stopped investing $30 billion in these purchases (15 billion each month), so the pace of asset purchases it went into in 2022 was at $90 billion per month: $60 billion in Treasuries (OT) and $30 billion in mortgage-backed securities.

However, At last month’s meeting The Fed, due to persistent inflation, announced a doubling of the “tapping” pace. In other words, cutting $15 billion a month becomes $30 billion.

That $30 billion reduction in monthly asset purchases, which takes effect early this month in January, breaks down into $20 billion in OT cases and $10 billion in mortgage-backed securities.

So, starting this month, the Fed will buy just $40 billion per month in OT and $20 billion in mortgage-backed securities, the December meeting statement confirmed.

(updated news)