Fed May Hike Rates Sooner and Faster, According to December Minutes
The Federal Reserve released the minutes from its mid-December Federal Open Market Committee meeting on Wednesday, Jan. 5, revealing that bond tapering and interest rate hikes could take place sooner than expected.
The minutes indicated that officials are ready to aggressively scale back policy help, CNBC reported. In order to stem inflation amid a strong labor market, the Fed minutes noted that “it may become warranted to increase the federal funds rate sooner or at a faster pace than participants had earlier anticipated.”
Additionally, the Fed may be looking to reduce its balance sheet soon after raising the funds rate and stemming bond purchases. Bond purchases may stop as soon as March, according to the minutes. Some experts are predicting an interest rate hike in March as well, with the Fed beginning to shrink its $8.67 trillion balance sheet some time in the second quarter, Bloomberg reported.
Several Fed officials said they feel the job market has reached the “maximum employment” goal set when it loosened its policies to stimulate the economy at the height of the pandemic in 2020. The unemployment rate sits at a new pandemic low of 4.2%, according to the Bureau of Labor Statistics. That’s still above the pre-pandemic rate of 3.5% but less than one-third of the pandemic high of 14.8% experienced in April 2020.
As a result of the meeting minutes, the Dow Jones Industrial Average fell sharply, closing down 1.07%. The S&P 500 dropped nearly 2%, and the Nasdaq composite lost 3.34% on Wednesday. It seems the Santa Claus Rally, which drove stocks up at the beginning of the week, has ended, as many experts predicted it would.
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