The Federal Reserve's December meeting revealed the possibility of earlier and faster rate hikes as inflation continues to soar.
After the meeting, it was doubling its taper rate and considering three rate increases in 2022. The minutes released by the Federal Open Market Committee showed that members of the Federal Open Market Committee FOMC discussed the possibility of raising rates sooner than originally planned.
The minutes stated that it may be necessary to increase the federal funds rate sooner or later in the future because of the individual outlooks for the economy, labor market, and inflation. Some participants 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 show that the Central Bank has exceeded their previous expectations by focusing its attention on surprisingly high inflation.
The minutes stated that inflation readings had been higher and were more persistent and widespread than previously anticipated. Some of the product categories with substantial price increases continued to climb as measured by inflation had reached decade-high levels and that mean measures of inflation had reached decade-high levels.
While most participants continued to believe that inflation would decline significantly over the course of 2022 as supply constraints eased, almost all stated that they had revised up their forecasts of inflation for 2022 notably, and many did so for 2023 as well.
Inflation in November as the Consumer Price Index CPI increased by 6.8% annually, the Bureau of Labor Statistics BLS said. As inflation increases, the Fed could shift its policy and increase its anticipated rate hikes, increasing the federal funds rate in 2022 sooner than expected.
The minutes stated that current conditions included a stronger economic outlook, higher inflation and a larger balance sheet, and could warrant a faster pace of policy rate normalization.
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According to the FedWatch Tool, traders have indicated that the possibility of a rate hike at the Fed's March meeting increased to 57.6% in the first week of January. This came as Fed officials began considering the possibility of three rate hikes this year and stepped up the tapering of asset purchases as inflation increases and the labor market improves as a result of the December FOMC meeting.
The minutes stated that the U.S. economy was making rapid progress toward the Committee's maximum-employment goal, despite the fact that the maximum level of employment could change over time. Many participants viewed labor market conditions as being largely consistent with maximum employment. If you want to take advantage of today s low interest rates before they start to rise, you could consider taking out a personal loan to pay down high-interest debt. Email The Credible Money Expert at Money Expert Credible.com and ask a question that could be answered by Credible in our Money Expert column.