Fed Officials "Prepared to Raise Interest Rates if Inflation Continues to Rise"

FOMC Minutes: "Members Should End Tapering Early and Raise Rates If Needed"
Early Rate Hike Possibility Grows Amid Inflation Concerns

[Image source=Reuters Yonhap News]

[Asia Economy New York=Correspondent Baek Jong-min] It has been confirmed that members of the U.S. central bank Federal Reserve (Fed) expressed opinions at the November Federal Open Market Committee (FOMC) regular meeting that if inflation continues to rise, the tapering of asset purchases should be completed promptly and interest rate hikes should be initiated early.

According to the minutes of the November FOMC meeting released by the Fed on the 24th (local time), members raised concerns that inflationary pressures are increasing and that tapering should be ended sooner in preparation for the need to raise the current zero interest rate.

The minutes stated, "A majority of members assessed that if inflation remains persistently above the Committee’s target level, they should be prepared to adjust the pace of asset purchases and raise the target range for the federal funds rate sooner than currently anticipated."

The minutes also said, "While members still emphasized patience, they would not hesitate to take appropriate measures to address inflationary pressures that pose risks to long-term price stability and employment goals."

The Fed announced after the November FOMC meeting that it would begin tapering asset purchases at a pace of $15 billion per month.

At the press conference at that time, Fed Chair Jerome Powell did not provide exact criteria for what circumstances might accelerate the tapering of asset purchases.

Economic indicators released that day also suggest the necessity of interest rate hikes. The October Personal Consumption Expenditures (PCE) price index, which the Fed considers important, reached 4.1%, the highest level in 31 years. This significantly exceeds the Fed’s inflation target of 2%.

New unemployment claims fell below 200,000 for the first time since the COVID-19 pandemic, marking the lowest level in 52 years. This could be interpreted as a sign that there is no reason to delay interest rate hikes due to concerns about worsening employment.

The Wall Street Journal forecasted that if the tapering amount increases to $30 billion per month at next month’s FOMC meeting, tapering could be completed by March next year and interest rate hikes could begin in the first half of the year.

CME’s FedWatch tool expects three base rate hikes next year.

Amid the consecutive releases of employment data, inflation figures, and the FOMC minutes, the yield on the U.S. 10-year Treasury note was slightly down at 1.653% as of 2:23 p.m., compared to the previous day. The Treasury yield had risen to 1.68% in the morning but then reversed to decline.