Fed officials discussed earlier and faster rate hikes, the minutes show

The minutes showed that both considerations weighed on policymakers in their deliberations about their future actions, but as the labor market recovered quickly, they have begun to focus their attention decisively on the risk of excessive inflation. The Fed has two main roles: promoting maximum employment and keeping prices relatively stable.

“Several participants noted that they already saw labor market conditions largely in line with maximum employment,” the minutes read. At the same time, some officials noted that even if the labor market did not fully recover, if inflation showed signs of a spike that got out of hand, it might be wise to hike rates.

“It underscores that they definitely have a strong tendency towards rate hikes,” said Michael Feroli, US chief economist at JP Morgan, after the release. Although it is difficult to pinpoint the timing, he said, “they are moving towards putting politics in a more restrictive environment”.

There is a reason for the Fed’s active stance. Inflation has been alarmingly high for much longer than central bankers expected. Last year, policymakers expected prices to rise temporarily as pandemic-hit sectors such as airlines and restaurants rebounded and then returned to normal.

Instead, through November, prices rose the most since 1982, and monthly increases remained brisk. Factory closures and tangled shipping lines have made it difficult for suppliers to catch up with booming consumer demand for goods, which is driving up costs. The price gains have also started to spread: rents are rising faster, which could keep the high inflation going.

Inflation is widely expected to ease this spring as prices are measured at relatively high levels from last year. Prices could also slow as producers catch up with demand, officials hope. But policymakers lack certainty about when this will happen.

Officials in their December economic estimates projected inflation to fall to 2.6 percent by the end of 2022, but estimates ranged from 2 to 3.2 percent. To put those numbers in context, the Fed’s preferred price index rose 5.7 percent through November, and the central bank is targeting an average of 2 percent annual gains over time.

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