Fed May Raise Rates Earlier and Faster, According to December Minutes
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The Federal Reserve released the minutes of its mid-December Federal Open Market Committee meeting on Wednesday, January 5, revealing that bond cuts and interest rate hikes could take place sooner than expected.
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The minutes indicated officials were prepared to aggressively cut political aid, CNBC reported. In order to stem inflation in a strong labor market, the Fed minutes noted that “it may become warranted to raise the federal funds rate earlier or at a faster rate than participants had. anticipated “.
Additionally, the Fed may seek to reduce its balance sheet soon after raising the funds rate and stemming bond purchases. Bond purchases could stop as early as March, according to the minutes. Some experts are also forecasting an interest rate hike in March, with the Fed starting to reduce its balance sheet by $ 8.67 trillion in the second quarter, Bloomberg reported.
See: Inflation continues to outpace increases as only 17% of Americans say their wages keep pace
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Several Fed officials have said they believe the labor market has met the “maximum employment” target set when it eased policies to stimulate the economy at the height of the pandemic in 2020. The Unemployment rate sits at a new pandemic low of 4.2%, according to the Bureau of Labor Statistics. This is still above the pre-pandemic rate of 3.5% but less than a third of the pandemic peak of 14.8% recorded in April 2020.
Following the meeting minutes, the Dow Jones Industrial Average fell sharply, closing down 1.07%. The S&P 500 fell nearly 2% and the Nasdaq composite lost 3.34% on Wednesday. It looks like the Santa Claus Rally, which drove stocks up earlier this week, is over, as many experts predicted.
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