(John Ransom, Headline USA) In a double whammy, the Federal Reserve minutes showed members are looking at both reducing their balance sheet of securities and raising interest rates.
The total effect will be to make money more expensive for everybody from homeowners and car buyers, to companies to borrow money that could slow down inflation, but yet also poses a danger that the economy could slow down too.
The moves could bring interest rates up from the near zero level they currently are to as high as 50 basis points each meeting or more, said CNBC.
The ‘accuracy’ of #FederalReserve Vice Chair Lael Brainard:
Jul 2020: supported letting #inflation run hot (exceed 2% target)
Apr 2021: Inflation expectations are “extremely well anchored”
Sep 2021: “I expect inflation to decelerate”
Today: “Inflation is much too high” pic.twitter.com/CGd7FBHgnC
— Adam Taggart (@menlobear) April 6, 2022
“Many [Federal Reserve] participants noted that one or more 50 basis point increases in the target range could be appropriate at future meetings, particularly if inflation pressures remained elevated or intensified,” the minutes said.
Plans to reduce the balance sheet of securities that the Federal Reserve owns could take up to three years with a target of about 20 percent of GDP. Combined with three 50 basis point rate increases, it could point to the fastest tightening of the economy since the 1960s, said Reuters.
Currently the Fed balance sheet stands at about $9 trillion, up from $4 trillion prior to the pandemic.
“I expect the balance sheet to shrink considerably more rapidly,” than it did in 2017 to 2019, the last time the Federal Reserve tried to shrink its balance sheet and raise interest rates, Fed Governor and Vice-Chair nominee Lael Brainard said.
Like they did back then, the Federal Reserve is trying to engineer the soft landing, where they can raise interest rates yet keep the economy running, an almost mythical task.
Then-President Trump blasted the Fed in 2018 for raising interest rates too fast.
“They’re raising interest rates too fast,” Trump told reporters, said NBC News. “They think the economy is so good, but I think that they will get it pretty soon, I really do.”
President Joe Biden so far has had no comment on the proposed interest rate hikes, but it doesn’t bode well for a presidency that’s already struggling with low marks by the voters on the economy.
