Minutes from the March meeting of the Federal Reserve released Wednesday, April 6, showed that only Russia’s invasion of Ukraine kept the central bank from raising benchmark interest rates by 50 basis points instead the 25 basis-point increase the Fed actually instituted at that meeting. “Many” Fed officials viewed one or more half-point increases as appropriate going forward if price pressures fail to moderate.
The minutes showed the Fed proposing to shrink its balance sheet at a maximum pace of $60 billion in Treasuries and $35 billion in mortgage-backed securities each month. That’s in line with market expectations and nearly double the peak rate of $50 billion a month the last time the Fed trimmed its balance sheet from 2017 to 2019. The balance sheet ballooned $8.9 trillion as the Fed worked to prop up the economy during the Pandemic.
The Fed’s Open Market Committee is expected to approve the balance-sheet reduction at its May 4 meeting. The minutes provide “a potential explanation for Powell’s sharply hawkish tone at the March meeting: It appears that Fed staff–who over the past year have had a more benign inflation outlook than FOMC [Federal Open Market Committee] participants–have become noticeably more alarmed about inflation developments.
