Fed May Hike Rates Sooner and Faster, According to December Minutes

US Federal Reserve, Washington DC (in Spring).
uschools / Getty Images

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.

See: Fed Chair Powell — Inflation Is ‘Reason Behind’ Raising Interest Rates — Will It Have Significant Economic Impact?
Find: How Much Will the Fed Raising Interest Rates Affect You?

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.

See: Inflation Continues To Outpace Raises as Only 17% of Americans Say Their Pay is Keeping Up
Find: When Will High-Yield Savings Account Interest Rates Bounce Back?

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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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About the Author

Dawn Allcot is a full-time freelance writer and content marketing specialist who geeks out about finance, e-commerce, technology, and real estate. Her lengthy list of publishing credits include Bankrate, Lending Tree, and Chase Bank. She is the founder and owner of GeekTravelGuide.net, a travel, technology, and entertainment website. She lives on Long Island, New York, with a veritable menagerie that includes 2 cats, a rambunctious kitten, and three lizards of varying sizes and personalities – plus her two kids and husband. Find her on Twitter, @DawnAllcot.

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