According to the minutes of the most recent meeting, the Fed may need to raise interest rates “earlier or at a faster rate” than officials initially expected, as it seeks to control disturbingly high inflation and promote a stable economic recovery.

The minutes of the December meeting of the Federal Open Market Committee released on Wednesday showed that officials fully agreed to more quickly curtail the asset purchase plan made at the beginning of the pandemic in order to allow the central bank more flexibility to raise interest rates next year.

The minutes of the meeting provide more details on why the Fed Rotating At the end of 2021, a more proactive approach will be taken to withdraw easing policies from the financial market, and how the central bank will make various policy adjustments this year.

After the meeting minutes were announced, the pace of selling in the US stock market accelerated. The Standard & Poor’s 500 Index fell 1.2% that day, and the Nasdaq Composite Index, which is dominated by technology stocks, fell more than 2%.

The December meeting also held substantive discussions on the Fed’s balance sheet for the first time. The size of the balance sheet has more than doubled since the beginning of 2020 and is currently hovering at a level of slightly less than $9 trillion.

The minutes of the meeting showed that the Fed began to shrink its balance sheet after the first interest rate hike and received widespread support. Some people say that action may be taken “relatively soon” afterwards.

The minutes of the meeting stated: “Some participants believe that it may be necessary to adopt a less accommodative policy stance in the future, and the committee should convey a firm commitment to respond to rising inflationary pressures.”

According to the so-called personal interest rate forecast chart released after the Fed’s December meeting, officials Expected We will raise interest rates three times next year, three more in 2023, and two more in 2024.

In September, Fed officials had mixed views on the prospect of raising the policy interest rate this year from the current level of close to zero.

Christopher Waller, Governor of the Central Bank, later suggestion With the complete cessation of the stimulus plan, the first rate hike may even occur as early as March.

According to the minutes of the meeting, policymakers emphasized the importance of maintaining flexibility in future policy adjustments, especially considering the speed of economic recovery.

“Participants generally pointed out that, given their personal outlook on the economy, labor market, and inflation, it may be necessary to raise the federal funds rate faster or faster than participants had previously anticipated,” the minutes of the meeting stated.

The inflation rate is much higher than the Fed officials’ initial expectations in the early stages of the pandemic recovery. Recent prints show that the risk of entrenched consumer price increases is growing.

The minutes of the meeting are particularly concerned that supply chain bottlenecks and labor shortages that lead to price increases may “last longer and be more common than originally thought.”

At a press conference after the December meeting, Fed Chairman Jay Powell stated that the level of inflation was “not at all” what the Fed had expected when it announced in August 2020 that it would tolerate higher inflation to compensate for it. The past period was 2% below its long-term target.

One of its favorite indicators, the personal consumption expenditure price index, recorded an annual growth rate of 5.7% in November, the highest level in about 40 years.

Fed officials have accordingly raised their inflation forecasts, and the core indicator-excluding volatile items such as food and energy-is now expected to stabilize at 4.4% in 2021, and then fall further to 2.7% by the end of 2022. FOMC members and other regional chapter chairmen have also lowered their unemployment rate target, which is 4.2%. By the end of 2022, it is expected to drop to 3.5%.

The central bank has pledged to keep interest rates close to zero until an average inflation rate of 2% and a maximum employment rate are achieved.

The minutes of the meeting stated that the first threshold was “exceeded” and “several” participants believed that the labor market conditions had “basically met” the second goal.

Some participants even suggested that the Fed could raise interest rates before fully maximizing employment, especially as inflationary pressures continue to increase.