Officials “generally agreed” that a $ 60 billion threshold in the Treasury and $ 35 billion in mortgage-backed securities would be phased out over more than three months. At the meeting, the Fed approved its first rate hike in more than three years. The 25 basis point increase – a quarter of a percentage point – raised the key short-term borrowing rate from near zero to March 2020. In addition to the balance sheet discussions, officials also discussed the pace of interest rate hikes coming in, with members leaning towards more aggressive moves. This means possible interest rate increases of 50 basis points in the coming sessions, a level consistent with market pricing for the May vote. In fact, there was a significant upside last month. “Many participants noticed that one or more increases of 50 basis points in the target range might be appropriate in future sessions, especially if inflationary pressures remained high or intensified,” the minutes said. Uncertainty over the war in Ukraine has prevented some officials from moving the 50-unit base in March. Shares fell after the Fed’s release, while government bond yields remained higher. The minutes were “a warning to anyone who thinks the Fed will be more aggressive in its fight against inflation,” said Quincy Krosby, head of equities strategy at LPL Financial. Their message is “You are wrong”. Indeed, policymakers in recent days have become increasingly vocal in their views on reducing inflation. Gov. Lael Brainard said Tuesday that lowering prices would require a combination of steady increases and aggressive balance sheet cuts. Markets expect the Fed to raise interest rates by a total of 250 basis points this year. The Fed’s relative aggression extended to the balance sheet debate. Some members wanted no ceilings in the amount of monthly runoff, while others said they were fine with “relatively high” limits. The balance sheet review will see the Fed allow a maximum level of securities revenue to expire each month while reinvesting the rest. Short-term Treasury bills would be targeted, as “they are valued at high value as safe and liquid assets by the private sector.” Although officials did not hold a formal vote, the minutes showed that members agreed that the process could begin in May. Also at the meeting, Fed officials also sharply raised their inflation outlook and lowered their expectations for economic growth. Rising inflation is the driving force behind the tightening of the central bank. Markets were looking at the release of minutes for details on where monetary policy is headed from here. In particular, Fed Chairman Jerome Powell said in the press conference after the meeting that the minutes will provide details on the thought of reducing the balance sheet. The Fed extended its holdings to about $ 9 trillion, or more than double, during monthly bond purchases in the wake of the pandemic crisis. These purchases were completed just a month ago, despite signs that inflation was roaring higher than the United States had seen since the early 1980s, a wave that quelled then-President Paul Volcker and dragged the economy into recession. This is breaking news. Check back here for updates.
