Fed Officials Express Resolve to Address Inflation Risks

Federal Reserve officials in discussions earlier this month said the central bank “would not hesitate” to take appropriate actions to address inflation pressures that posed risks to the economy.

In minutes released Wednesday of the Fed’s Nov. 2-3 meeting, Fed officials maintained that the spike in inflation seen this year was still likely to be transitory while acknowledging that the rise in prices had been greater than expected.

The minutes covered a meeting in which the Fed voted to take the first step to roll back the massive support it has provided to an economy pushed into a recession last year after widespread lockdowns to contain the COVID virus. It was the Federal Open Market Committee (FOMC) meeting, which the Fed typically holds eight times a year.

At the November meeting, the Fed approved reductions in the amount of Treasury bonds and mortgage backed securities it had been purchasing to put downward pressure on long-term interest rates.

The committee approved reducing by $15 billion in November and another $15 billion cut in December in the $120 billion in monthly purchases of Treasury bonds and mortgage-backed securities it had been making. The expectation was that these monthly reductions would continue until the bond purchase program was phased out in the middle of next year.

Inflation in recent months has been hitting levels not seen in decades. Fed Chairman Jerome Powell and other Fed officials have argued that the prices pressures were likely to be transitory and fade away once problems such as supply chain bottlenecks are resolved.

But the Fed minutes showed a growing concern that the unwanted price pressures could last for a longer tie and the Fed should be prepared to move to reduce bond purchases more quickly or even start raising the Fed’s benchmark interest rate sooner to make sure inflation did not get out of hand.

“Various participants noted that the committee should be prepared to adjust the pace of asset purchases and raise the target range for the federal funds rate sooner than participants currently anticipated if inflation continued to run higher than levels consistent with the committee’s objectives,” the minutes said.

The Fed’s policy rate was cut to a record low of 0% to 0.25% in the spring of 2020 as the Fed focused its efforts on keeping the COVID recession from spiraling into a deeper downturn.

The Fed will next meet on Dec. 14-15 and some private economists said the central bank may decide to send a stronger signal at that time of the Fed’s intentions to address the economy’s jump in inflation.

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