On Wednesday 16th February, the FOMC released the minutes from their January 25th-26th meeting.
In the released minutes, a few points to note are:
Participants anticipated that raising the target range for rates would be necessary soon. Most participants believed that a faster rate of increase in the federal funds rate target range than in the post-2015 period would be justified. Most participants emphasised that if inflation does not fall as expected, it would be appropriate for the committee to eliminate policy accommodation at a faster rate than currently anticipated.
Most participants preferred that the committee's net asset purchases continue to be reduced in accordance with the schedule announced in December, with the purchases coming to an end in early March. Several participants expressed their belief that the conditions would likely necessitate beginning to reduce the size of the balance sheet later this year.
Some participants expressed concern that the abrupt removal of policy accommodation would cause financial conditions to tighten unnecessarily.
A couple of participants noted that they favored the committee's net asset purchases to be ended sooner to convey an even stronger signal that the committee was committed to lowering inflation. Participants agreed that uncertainty about the path of inflation was high, and that inflation risks were skewed to the upside. However, longer-term measures of inflation expectations, according to some participants, appeared to be well anchored.
Several participants noted that asset valuations were elevated across a variety of markets, raising concerns that significant realignment could contribute to a future downturn.
Several participants mentioned downside risks to the outlook, such as a possible worsening of the pandemic, the possibility of escalating geopolitical tensions, or a significant tightening of financial conditions.
Some policymakers saw emerging threats to financial stability as a result of the rapid growth of crypto assets and decentralised finance platforms.
Fed Staff predicted that PCE inflation is expected to be 2.6% in 2022 and 2% in 2023.