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FOMC minutes reveal agreement on doubling pace of reducing net asset purchases
The Federal Open Market Committee (FOMC) released minutes from its December 2021 conference meeting, revealing that participants appropriately deemed doubling the pace of the ongoing reduction in net asset purchases. This change will result in reducing the monthly pace of net purchases of Treasury securities by $20 billion and or agency by $10 billion starting this month.
“The minutes from the FOMC’s December meeting show that the committee views adjustments to both interest rates and the size of its balance sheet as being important elements of its normalization plan,” said NAFCU Chief Economist and Vice President of Research Curt Long. “If long-term rates remain low, such that rate hikes threaten to invert the yield curve, the committee may prioritize balance sheet reductions instead.
“However, that scenario probably does not come into play until the end of 2022 at the earliest,” concluded Long. “A March rate hike is likely, with a second following sometime between June and September.”
Other key findings from the minutes released Wednesday include:
- several participants commented that removing policy accommodation by relying more on balance sheet reduction and less on increases in the policy rate could limit yield curve flattening during policy normalization;
- economic activity showed strength in the fourth quarter following a slow third quarter and is expected to see robust growth during 2022;
- participants also noted that supply chain issues and labor shortages continued to hinder businesses’ ability to meet strong demand and that these challenges would likely persist into the new year; and
- participants discussed that the emergence of the Omicron coronavirus variant made the economic outlook uncertain, however they do not expect the new variant to fundamentally alter the course to economic recovery.
The FOMC is expected to next meet Jan. 25-26.