Fed officials concluded at their January meeting that inflation was too high as the economy entered full employment, warranting an imminent rise in the benchmark interest rate. Rising inflation has prompted some US central bankers to revise their outlook for rate increases this year.
The prominent facts in the minutes regarding the principles of rate hike, policy tightening and balance sheet reduction;
· Most respondents indicated that if inflation did not decline as they expected, it would be appropriate for the Committee to adjust policy more quickly than they currently anticipate. (Definite rate hike in March)
· The Committee sees changes in the federal funds rate target range as the primary means of adjusting the monetary policy stance.
· The Committee will determine the timing and pace of the Fed’s downsizing of its balance sheet to support maximum employment and price stability goals. The committee hopes that shrinking the size of the Fed’s balance sheet will begin once the process of increasing the federal funds rate target range begins. (Details of the balance sheet shrinkage will likely come out in March, it looks like it’s appropriate to start the mid-year shrinkage.)
· The Committee aims to reduce the Fed’s securities holdings in a predictable way over time, primarily by adjusting the reinvested amounts of principal payments received from securities held in the System Open Market Account (SOMA).
· Over time, the Committee aims to hold securities in the quantities necessary to implement monetary policy efficiently and effectively in a plentiful reserve regime.
· Over the longer term, the Committee aims primarily to hold Treasury securities in SOMA, thereby minimizing the impact of Fed assets on credit allocation across sectors of the economy.
· The Committee is ready to change any detail of the balance sheet reduction approach in light of economic and financial developments.
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