MNI BRIEF: Fed Discussed Faster Rate Liftoff on Inflation Risk

Federal Reserve officials agreed to speed up their taper of QE last month because policymakers would like to be ready to raise interest rates three times over the course of 2022, according to minutes from their December meeting.

"Participants remarked that inflation readings had been higher and were more persistent and widespread than previously anticipated," the FOMC's report said. "Participants generally noted that, given their individual outlooks for the economy, the labor market, and inflation, it may become warranted to increase the federal funds rate sooner or at a faster pace than participants had earlier anticipated."

Most Fed officials saw inflation risks as tilted to the upside, the minutes said. The Fed revised up its inflation forecast for year-end 2022 to 2.6% from 2.2% at its December meeting, though one prominent economist tells MNI that is still too optimistic.

Fed officials were also optimistic on jobs. "Participants pointed to a number of signs that the U.S. labor market was very tight, including near-record rates of quits and job vacancies, as well as a notable pickup in wage growth," the minutes said.

Officials debated how to deal with the central bank's balance sheet, with many arguing that run-off could be undertaken more quickly than the last time the Fed tried to reduce its bond holdings.