WASHINGTON (Reuters) – The minutes of the Federal Reserve’s December 14-15 meeting showed that US central bank officials said last month that the Fed may not only need to raise interest rates sooner than expected, but also reduce its overall asset holdings to cool down. inflation.
“Participants generally indicated … that there may be a justification for an increase in the federal funds rate sooner or faster than participants previously predicted,” the minutes said. Some participants also indicated that it might be appropriate to start reducing the size of the Federal Reserve’s balance sheet after starting to increase the federal funds rate.
The minutes of the meeting, released on Wednesday, did not provide further details about the Fed’s shift last month towards tighter monetary policy.
Bond purchases
At their meeting in December, Fed policymakers agreed to speed up the end of their pandemic-fuelled program of bond purchases and issued forecasts forecasting three interest rate increases, each by a quarter of a percentage point, over the course of 2022.
The minutes also showed that the Fed was discussing not only an initial rate hike, but also whether it should use a second tool to curb inflation by allowing its holdings of US Treasuries and mortgage-backed securities to decline.
The December meeting was held while the number of infections with the Corona virus had begun to jump due to the spread of the mutated Omicron.
Infections have ballooned since then, and there have been no comments from senior Fed officials yet indicating that the changing health situation has changed their views on appropriate monetary policy.
Federal Reserve Chairman Jerome Powell will appear before the US Senate Banking Committee next week for a hearing on his nomination for a second four-year term, and is likely to state his views on the economy at that time.
The decline in gold and the dollar reduces its losses
Gold prices gave up their gains after the release of the minutes of the Federal Reserve meeting and fell 0.1% to $ 1812.77 an ounce.
The US dollar also declined, but trimmed its losses. The greenback weakened after gaining about 0.7 percent in the first two sessions of the new year and after increasing more than two percent since the end of October.
The dollar index, which measures the performance of the US currency against a basket of six competing currencies, fell in the latest trading by 0.164 percent, after it had fallen during the session by up to 0.44 percent.
The euro rose 0.23 percent to $1.1311.
The pound rose 0.20 percent in late trading to $1.3559. Earlier in the session, sterling hit a two-month high against the greenback at $1.3598, supported by expectations that the Bank of England will raise interest rates again next month.
The Japanese currency rose 0.07 percent to 116.06 yen to the dollar.
Sharp decline for “Wall Street”
US stocks closed sharply lower after the minutes of the meeting were published, and the Standard & Poor’s 500 and Nasdaq increased their losses at a rapid pace after the minutes of the meeting, which investors considered more hawkish than they feared. The Dow Jones index changed its course after hitting a record high earlier in the session, to close lower.
According to preliminary data, the Standard & Poor’s 500 index ended the trading session down 92.86 points, or 1.94 percent, at 4,700.49 points, while the Nasdaq Composite Index closed down 524.89 points, or 3.8 percent, to 15,097.83 points.
The Dow Jones Industrial Average fell 387.47 points, or 1.05 percent, to close at 36,412.18 points.
The Nasdaq recorded its largest one-day drop in percentage terms since February 25, 2021, while the Standard & Poor’s 500 recorded its largest one-day loss since November 26, 2021.
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