The minutes of the 14-15 December FOMC meeting, released on Wednesday, said most participants judged conditions for a rate hike could be met soon if the recent pace of labour market improvements continued. 

Additional Takeaways

On QE taper…

“In light of elevated inflation pressures and the strengthening labor market, participants judged that the increase in policy accommodation provided by the ongoing pace of net asset purchases was no longer necessary.”

“Participants remarked that a quicker conclusion of net asset purchases would better position the committee to set policy to address the full range of plausible economic outcomes.”

“Participants remarked that the committee should continue to be prepared to adjust the pace of purchases if warranted by changes in the economic outlook.”

On rate hikes…

“Most participants judged conditions for a rate hike could be met relatively soon if the recent pace of labor market improvements continued.”

“Participants noted that, given outlooks for the economy, 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.”

“Some participants also remarked that there could be circumstances in which it would be appropriate for the committee to raise the target range for the federal funds rate before maximum employment had been fully achieved.”

“Policymakers thought changes in fed funds rate should be primary means for adjusting the stance of policy.”

On eventual Quantitative Tightening (QT)…

“Policymakers began in December to discuss how balance sheet policy might feature in a plan to reduce accommodation when warranted.”

“Expectations for the timing of the first decline in balance sheet were ‘diffuse'”.

“Some participants also noted that it could be appropriate to begin to reduce the size of the federal reserve’s balance sheet relatively soon after beginning to raise the federal funds rate.”

“Some policymakers noted that balance sheet could potentially shrink faster than last time.”

“Several policymakers concerned treasury market vulnerabilities could affect the pace of balance sheet normalization.”

“Some policymakers thought ‘significant’ balance sheet shrinkage could be appropriate in the normalization process.”

“Almost all policymakers thought likely appropriate to start balance sheet runoff at some point after the first interest rate hike.”

“Participants judged that balance sheet runoff could start sooner after policy rate liftoff than last time.”

“Many policymakers judged the appropriate pace of balance sheet runoff would likely be faster this time than last.”

On inflation, supply chains snags…

“Most agreed that risks to inflation were weighted to the upside.”

“All participants remarked that inflation had continued to run notably above 2 percent, reflecting supply and demand imbalances related to the pandemic and the reopening of the economy.”

“Several participants pointed to the possibility that structural factors that kept inflation low in the previous decade may reemerge when the effects of the pandemic abate.”

“Some participants discussed the risk that recent elevated levels of inflation could increase the public’s longer-term expectations for inflation to a level above that consistent with the committee’s longer-run inflation objective.”

“Many participants noted that the pandemic, particularly new variants of the virus, continued to pose downside risks to economic activity and upside risks to inflation.”

“Participants noted their continuing attention to the public’s concern about the sizable increase in the cost of living that had taken place this year.”

“A couple of participants cited reports of higher inflation expectations of businesses and increased cost-of-living adjustments in wage negotiations as early developments that could affect anchoring of inflation expectations.”

“Participants generally expected global supply chain bottlenecks to persist well into next year at least.”

On the labour market… 

“Participants generally continued to stress uncertainties associated with the labor market and with the length of time required to resolve the supply chain situation.”

“Participants noted that the labor market had been making rapid progress and many judged that if the current pace of improvement continued, labor markets would fast approach maximum employment.”

“Several participants remarked that they viewed labor market conditions as already largely consistent with maximum employment.”

“Participants pointed to a number of signs that the US labor market was very tight, including near-record rates of quits and job vacancies, as well as a notable pickup in wage growth.”

General comments on policy, outlook…

“Some participants judged that a less accommodative future stance of policy would likely be warranted and that the committee should convey a strong commitment to addressing elevated inflation pressures.”

“No decisions on policy normalization were made at the December meeting.”

“Policymakers at the December meeting began a discussion of eventual normalization of monetary policy, including approaches for removing accommodation, and size, the composition of balance sheet.”

“A number of participants judged that a substantial improvement in labor force participation would take longer than previously expected.”

“Many participants noted that the emergence of the omicron variant made the economic outlook more uncertain; several remarked that they did not yet see the new variant as fundamentally altering the path of the US economic recovery.”

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