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Fed sees rate hikes ‘sooner’ as inflation spikes

WASHINGTON (AFP) – Federal Reserve officials last month were concerned about the Omicron impact, but believed the United States (US) economy had recovered enough from the pandemic downturn that interest rate hikes could come sooner than expected, according to minutes of the December meeting released on Wednesday.

The document provides a behind-the-scenes look at the deliberations of the Fed’s policy committee, which convened as the US central bank faced increasing pressure to act against the wave of inflation that sent consumer prices surging to multi-decade highs.

The Federal Open Market Committee (FOMC) accelerated the withdrawal of the pandemic stimulus measures and released forecasts showing central bankers expect to hike interest rates – their most potent weapon against price increases – as many as three times in 2022.

One of the two criteria for raising the benchmark lending rate off zero is how close the economy is to maximum employment, and many officials believe it is nearing that point or already there.

That means “it may become warranted to increase the federal funds rate sooner or at a faster pace than participants had earlier anticipated”, the minutes said.

With the faster pullback, the Fed’s stimulus bond-buying program now is set to end in March, setting the stage for rate hikes after that, though the minutes acknowledge they could move even quicker, if necessary given rising prices.

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