In practice, he said, that means potentially signaling that one rate hike could soon be followed by another at the subsequent meeting, without fully committing to it, said Reinhart, now the chief economist at Dreyfus and Mellon.
At the December meeting, Fed officials were anticipating three quarter-point hikes in 2022, according to the median in the central bank’s “dot plot.”
A formula developed by Bloomberg Economics, however, “strongly suggests that the anticipated path of the funds rate is more likely to be revised up than down,” former Fed economist David Wilcox, director of U.S. economic research at Bloomberg, wrote in a note Wednesday.
The meeting showed Fed officials received a briefing from staff members on issues related to normalization of the central bank’s balance sheet following trillions of dollars of bond-buying. During the last rate-hike cycle in the 2010s, the Fed waited almost two years after liftoff to begin trimming assets.
This time around, “participants judged that the appropriate timing of balance sheet runoff would likely be closer to that of policy rate liftoff than in the committee’s previous experience,” the minutes said.
In addition, “some participants judged that a significant amount of balance sheet shrinkage could be appropriate over the normalization process.”
The minutes did offer some clarity on how officials view maximum employment, the variable that will now determine the timing of rate liftoff. Apart from the headline unemployment rate, the committee has been debating whether labor supply—represented by the participation rate—could rebound as companies scramble for workers.
The participation rate for people in their prime working years was 81.8% in November, below the last expansion’s peak of 83% seen in January 2020.
The minutes said “a number” of officials judged that a full recovery in participation would take longer than expected—in effect signaling the economy was already close enough to what they consider full employment.
In addition, “many participants saw the U.S. economy making rapid progress toward the committee’s maximum-employment goal,” the minutes said.
“The committee has finally come around to the increasingly obvious fact that the labor market is extremely tight,” said Stephen Stanley, chief economist at Amherst Pierpont Securities.
This article was provided by Bloomberg News.