In minutes from their most recent policy meeting three weeks ago, Federal Reserve policy-makers said they would likely cut their holdings by about $95-billion a month
The Federal Reserve is moving closer to rapidly shrinking its huge $9-trillion stockpile of bonds in the coming months to fight high inflation, a move that would contribute to higher borrowing costs for consumers and businesses.
The plan to quickly draw down their bond holdings marks the latest move by Fed officials to accelerate their inflation-fighting efforts. Prices are rising at the fastest pace in four decades, and Fed officials in recent speeches have expressed increasing concern about getting inflation under control. Financial markets now expect much steeper hikes this year than Fed officials had signalled as recently as their meeting in mid-March.
Chair Jerome Powell opened the door two weeks ago to increasing rates by as much as a half-point at upcoming meetings, rather than by a traditional quarter-point. The Fed hasn’t carried out any half-point rate increases since 2000. Lael Brainard, a key member of the Fed’s Board of Governors, and other officials have also made clear that such sharp increases are possible. Most economists now expect the Fed to raise rates by a half-point at both its May and June meetings.
As a sign of how fast the Fed is reversing its policy, the last time the Fed purchased bonds, there was a three-year gap between when it stopped its purchases, in 2014, and when it began reducing the balance sheet, in 2017. Now that shift is likely to happen in as few as three months, economists say.
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