Federal Reserve officials said a stronger economic recovery and higher inflation could lead to earlier than expected and faster interest-rate increases than previously expected, with some policy makers also favoring starting to shrink the balance sheet soon after.
“Participants generally noted that, given their individual outlooks for the economy, the 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,” according to minutes published Wednesday of the December 14-15 meeting of the U.S. central bank’s policy-setting Federal Open Market Committee.
“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,” the minutes said.
S&P 500 index continued earlier declines following the release of the meeting minutes failing 1.9% at the close marking biggest loss since November. Nasdaq on the other hand plunged more than 3% in its biggest one-day percentage drop since February.
The S&P 500 stock index extended declines following the release, falling 1.9 per cent at the close, the biggest loss since November.
The benchmark 10-year yield rose to as high as 1.7087% reaching to a level that was seen in April and overnight swaps markets moved to price in an 80 per cent chance of a 25 basis-point hike at the Fed’s meeting in March.
FOMC meeting minutes also outlined it would wind down the Fed’s bond buying program at a faster pace than earlier signaled in early November.
At the conclusion of the December meeting, the FOMC announced it would wind down the Fed’s bond-buying program at a faster pace than first outlined at the previous meeting in early November, citing rising risks from inflation. The new schedule puts the central bank on track to conclude purchases in March.
