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Federal Reserve officials discussed the possibility that they should be prepared to adjust monetary policy if inflation pressures continued to stay well above Fed targets, according to minutes of the Nov. 2-3 meeting published Wednesday.
The minutes showed that “some” Fed officials pushed their colleagues for a faster pace of tapering of bond purchases than the $15 billion per-month schedule that was agreed.
In addition, “various” Fed officials noted the Fed should be prepared to adjust the pace of tapering and raise short-term interest rates “if inflation continued to run higher than levels consistent with the FOMC’s objectives.”
At the meeting, the Fed decided to reduce its monthly asset purchases of Treasurys and mortgage securities by $15 billion a month.
Fed officials had been divided between hawks, who want the Fed to taper quicker and doves who have urged patience.
Since the early November meeting, there are signs that the doves are moving in the hawkish direction.
Earlier Wednesday, San Francisco Fed President Mary Daly, a noted dove on the Fed, told Yahoo Finance she would support a faster pace of tapering if the economic trends seen recently continue.
Krisha Guha, a former Fed staffer and now vice chairman of Evercore ISI, said that Daly’s comments suggest to him that a speeded up taper is now likely in December. Doves will keep their powder dry to debate when to raise short term interest rates.
The Fed cut its key short term rate to near zero at the start of the pandemic in 2020. Phasing out out the Fed’s asset purchases would give the central bank flexibility to raise rates next year.
According to the minutes, the Fed staff raised their “near-term” outlook for inflation but still expect rates of price increases to slow down to 2% in 2022.
Inflation is running at a 5% annual rate, well above the Fed’s 2% target.
Fed policy remains far from neutral — which the Fed now estimates to be a short-term interest rate of 2.5%.
The yield on the 10-year Treasury note
TMUBMUSD10Y,
has risen above 1.65% in recent days on comments from Fed officials about the faster pace of tightening.
Stocks
DJIA,
SPX,
were lower on concerns about higher borrowing costs.
