USA: Several Fed members in favor of raising rates faster

“Many participants noted that one or more 50 basis point hikes…might be appropriate in future meetings,” say the minutes of the March 15-16 meeting.

The U.S. central bank (Fed) is expected to step up rate hikes in coming months, as several of its officials favor it in order to combat high inflation in the United States, according to the minutes of the meeting of March 15 and 16, published Wednesday.

“Many participants pointed out that one or more 50 basis point hikes (half a percentage point, editor’s note) (…) could be appropriate in future meetings, particularly if inflationary pressures remain high or subside. ‘intensify’, is it stated in this document.

The Fed had begun raising rates at its meeting last month, but opted for a more modest hike of just a quarter of a percentage point.

“Many participants (…) would have preferred an increase of 50 basis points”, according to the minutes, but “a number” of them “indicated that in light of greater uncertainty in the short term related to Russia’s invasion of Ukraine, they felt that a 25 basis point increase would be appropriate at this meeting.

The rates, which had been in a range of 0 to 0.25% since March 2020, are therefore now between 0.25% and 0.50%.

But it could be “appropriate” to return “quickly” to so-called “neutral” rates, that is to say around 2 or 2.50%, according to members of the Fed’s monetary committee.

To slow inflation, the Fed also plans to gradually part with the billions of dollars of Treasury bills and other assets it has purchased since March 2020. These have more than doubled the size of its balance sheet, which today reaches nearly 9 trillion dollars, compared to 4.1 trillion in February 2020.

No more share buybacks

Officials of the mighty Federal Reserve had indeed agreed at their March meeting that it might be “appropriate to begin this process at a future meeting, perhaps as early as May”, is- he further clarified within minutes.

Concretely, this means that the Fed no longer buys securities and lets the bonds mature, which leads to a mechanical reduction in its balance sheet.

In their discussions last month, officials at the institution were leaning towards a rate of reduction of $95 billion each month: about $60 billion for Treasuries and about $35 billion for MBS (bonds guaranteed by real estate loans).

They also “mostly agreed that the caps could be phased in over a period of three months or slightly longer if market conditions warrant,” the minutes state.

Inflation in the United States is at its highest for 40 years, at 6.4% in February according to the PCE index, favored by the Fed, and at 7.9% according to another index, the CPI, used in particular to the indexation of pensions.

And the rise in prices should accelerate further in the months to come.

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