Federal Reserve officials concluded in January that they would start raising interest rates soon and were on alert for persistent inflation that would justify a faster pace of tightening.
The meeting minutes released on Wednesday of the January 25-26 Federal Open Market Committee meeting noted if inflation number do not come down as the committee expect, the committee would need to remove policy accommodation at a faster than its currently anticipates.
It noted with soaring inflation number and strong employment, it was time to raise interest rate but the decision would depend on a meeting-by-meeting analysis of inflation and other economic indicators.
“Most participants noted that, if inflation does not move down as they expect, it would be appropriate for the (Federal Open Market) Committee to remove policy accommodation at a faster pace than they currently anticipate,” the minutes stated.
“Participants observed that, in light of the current high level of the Federal Reserve’s securities holdings, a significant reduction in the size of the balance sheet would likely be appropriate,” the meeting summary stated.
Some participants in the meeting favor ending net asset purchases sooner to signal the market the committee is committed to bring inflation down.
“A couple of participants stated that they favored ending the Committee’s net asset purchases sooner to send an even stronger signal that the Committee was committed to bringing down inflation,” the minutes said.
“The market correctly interpreted them as dovish relative to expectations,” said Simona Mocuta, chief economist at State Street Global Advisors told CNBC. “Frankly, I would call them anticlimactic.”
“There’s been so much hype recently that I think everybody was braced for a very hawkish tone in the minutes, and the minutes were more like, ‘We’ll do it, of course, but we’ll walk before we run,’” Mocuta said. “It seems enough for the Fed to do four hikes. Talk the hawkish talk, tell everybody that we are watching this closely, and if we need to do more we can do more.”
Earlier fresh inflation numbers came out at the fastest pace in 40 years. The official Fed’s target level inflation is at 2% and official concluded they policy changes are needs to bring the number to the target range.