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MNI: Fed Fears Financial Tightening May Speed Up -Ex-Officials

(MNI) Washington

Policymakers are worried they will not be able to gauge an overshooting of monetary tightening.

Federal Reserve officials are worried U.S. financial conditions could tighten more quickly than expected in response to aggressive rate increases and balance sheet runoffs, potentially compromising economic expansion, former central bank officials and researchers told MNI.

Policymakers are paying close attention to various measures of financial conditions including the stock market, whose sharp recent decline could drag on investment and household wealth, and to an incipient widening of credit spreads, as they seek to gauge how close rates are getting to neutral levels that neither boost nor slow growth and avoid any overshoot in monetary tightening, ex-policymakers said.

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Federal Reserve officials are worried U.S. financial conditions could tighten more quickly than expected in response to aggressive rate increases and balance sheet runoffs, potentially compromising economic expansion, former central bank officials and researchers told MNI.

Policymakers are paying close attention to various measures of financial conditions including the stock market, whose sharp recent decline could drag on investment and household wealth, and to an incipient widening of credit spreads, as they seek to gauge how close rates are getting to neutral levels that neither boost nor slow growth and avoid any overshoot in monetary tightening, ex-policymakers said.

Keep reading...Show less