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Fed meeting minutes show members ready to raise interest rates if inflation continues to run high

Federal Reserve Chairman Jerome Powell attends the House Financial Services Committee hearing on Capitol Hill in Washington, U.S., September 30, 2021.

Al Drago | Reuters

Federal Reserve officials at their meeting earlier this month expressed concern about inflation and said they would be willing to raise interest rate if prices keep rising.

The committee that sets interest rates for the Fed on Wednesday released the minutes from the November session where it first signaled that it could be dialing back all the economic help it’s been providing during the pandemic.

The meeting summary indicates a lively discussion about inflation, with members stressing the willingness to act if conditions continue to heat up.

“Various participants noted that the Committee should be prepared to adjust the pace of asset purchases and raise the target range for the federal funds rate sooner than participants currently anticipated if inflation continued to run higher than levels consistent with the Committee’s objectives,” the minutes stated.

Officials stressed a “patient” approach regarding incoming data, which has shown inflation running at its highest pace in more than 30, the years.

But they also said they would “not hesitate to take appropriate actions to address inflation pressures that posed risks to its longer-run price stability and employment objectives.”

Following the two-day session that concluded Nov. 3, the Federal Open Market Committee indicated it will begin cutting back on the monthly bond-buying program that had seen it purchasing at least $120 billion in Treasurys and mortgage-backed securities.

The goal of the program was to keep money flowing in those markets while maintaining broader interest rates at low levels to boost economic activity.

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In its post-meeting statement, the FOMC said “substantial further progress” in the economy would allow a $15 billion a month reduction in purchases — $10 billion in Treasurys and $5 billion in MBS. The statement said that pace would be maintained through at least December and probably continue going forward until the program wound down – likely by late spring or early summer 2022.

Investors, though, were awaiting the minutes for a deeper glimpse into what would prompt the Fed to move even more quickly in pulling back stimulus.

That’s important because inflation has gotten even hotter since the November meeting. In previous cycles, the Fed has raised interest rates to cool the economy, but officials have said they are willing to allow inflation to run hotter than normal to let the employment picture improve.

Markets, though, are anticipating a more aggressive Fed. Traders in contracts that bet on the future of short-term rates are indicating the Fed will raise its benchmark rate three times in 2022 in25 basis point intervals, though current official projections are for no more than one hike next year. However, those markets are volatile and can change quickly depending on the signals the Fed sends.

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