FOMC MINUTES: A couple of participants stated that they favored ending the Committee's net asset purchases sooner to send an even stronger signal that the Committee was committed to bringing down inflation.

Policy

• In light of elevated inflation pressures and the strong labor market, participants continued to judge that the Committee's net asset purchases should be concluded soon.


• Most participants preferred to continue to reduce the Committee's net asset purchases according to the schedule announced in December, bringing them to an end in early March.


• A couple of participants stated that they favored ending the Committee's net asset purchases sooner to send an even stronger signal that the Committee was committed to bringing down inflation.


• Many participants commented that sales of agency MBS or reinvesting some portion of principal payments received from agency MBS into Treasury securities may be appropriate at some point in the future to enable suitable progress toward a longer-run SOMA portfolio composition consisting primarily of Treasury securities.


• Participants discussed the implications of the economic outlook for the likely timing and pace for removing policy accommodation.


• Compared with conditions in 2015 when the Committee last began a process of removing monetary policy accommodation... most participants suggested that a faster pace of increases in the target range for the federal funds rate than in the post-2015 period would likely be warranted, should the economy evolve generally in line with the Committee's expectation.
  


• Participants emphasized that the appropriate path of policy would depend on economic and financial developments and their implications for the outlook and the risks around the outlook, and they will be updating their assessments of the appropriate setting for the policy stance at each meeting.


• Participants noted that the removal of policy accommodation in current circumstances depended on the timing and pace of both increases in the target range of the federal funds rate and the reduction in the size of the Federal Reserve's balance sheet.


• In this context, a number of participants commented that conditions would likely warrant beginning to reduce the size of the balance sheet sometime later this year.
  


• They also anticipated that it would soon be appropriate to raise the target range.
  


• Most participants noted that, if inflation does not move down as they expect, it would be appropriate for the Committee to remove policy accommodation at a faster pace than they currently anticipate.


• In discussing why beginning to remove policy accommodation could soon be warranted, participants noted that inflation continued to run well above 2 percent and generally judged the risks to the outlook for inflation as tilted to the upside.


• Participants also assessed that the labor market was strong, having made substantial, broad-based progress over the past year.


• In their discussion of the outlook for monetary policy, many participants noted the influence on financial conditions of the Committee's recent communications and viewed these communications as helpful in shifting private-sector expectations regarding the policy outlook into better alignment with the Committee's assessment of appropriate policy.


• Participants continued to stress that maintaining flexibility to implement appropriate policy adjustments on the basis of risk-management considerations should be a guiding principle in conducting policy in the current highly uncertain environment.


• Some participants commented on the risk that financial conditions might tighten unduly in response to a rapid removal of policy accommodation.


• A few participants remarked that this risk could be mitigated through clear and effective communication of the Committee's assessments of the economic outlook, the risks around the outlook, and the appropriate path for monetary policy.

Inflation

• Participants remarked that recent inflation readings had continued to significantly exceed the Committee's longer-run goal and elevated inflation was persisting longer than they had anticipated, reflecting supply and demand imbalances related to the pandemic and the reopening of the economy.


• Some participants commented that elevated inflation had broadened beyond sectors most directly affected by those factors, bolstered in part by strong consumer demand.


• Various participants cited other developments that had the potential to place additional upward pressure on inflation, including real wage growth in excess of productivity growth and increases in prices for housing services.


• Some participants reported that their business contacts remained concerned about persistently high inflation and that they were adjusting their business practices to cope with higher input costs—for instance, by raising output prices or utilizing contracts that were contingent on their costs.


• Participants generally expected inflation to moderate over the course of the year as supply and demand imbalances ease and monetary policy accommodation is removed.


• Some participants remarked that longer-term measures of inflation expectations appeared to remain well anchored, which would support a return of inflation over time to levels consistent with the Committee's goals.


• Participants agreed that uncertainty regarding the path of inflation was elevated and that risks to inflation were weighted to the upside.

via Federal reserve

Analysis details (19:21)

The minutes have seen little new information that markets were not aware of. The pick-up in stocks and Treasuries is likely a function of the lack of hawkish surprises, rather than outright dovishness. We did not get any clarity on a 50bps rate liftoff, nor did we get much new regarding balance sheet reduction rather than its expected by "a number" of participants "later this year". There is some attention on the comment that the Fed Funds rate could increase at a faster pace than the post-2015 period, but given where markets are priced and the recent Fed speak projections, that's not so surprising. On tapering, however there are a "couple" who favored ending net asset purchases sooner. The minutes also reinforced the data dependence mode from the Fed, particularly around inflation where "most" said "if inflation does not move down as they expect", it would be appropriate to "remove policy accommodation at a faster pace than they currently anticipate".

16 Feb 2022 - 19:02- Fixed IncomeData- Source: Fed