Fed is committed to start raising interest rates to fight high inflation, but policymakers are not united about the pace of hikes

The minutes of US Federal Reserve Jan 25/26 policy meeting showed that the central bank is ready to start raising interest rates, as inflation tightens its grip, and the labor market remains strong.

Fed officials said that it would be soon appropriate to raise the central bank’s benchmark overnight interest rate from its near-zero level, as the economic data since the beginning of the year showed the US economy is continuing to grow and inflationary pressures remain high.

Inflation in the US rose at the fastest pace in four decades in January and tending to increase further that was alarm for the US central bank to start tightening, possibly at a faster than expected pace, to fight raging inflation.

However, the policymakers were not united in the pace of hikes, particularly with 0.5% interest rate increase in March that many analysts and some Fed central bankers signaled, with still prevailing expectations for a quarter-percent hike that Fed was mainly doing in recent years.

The policymakers who support more cautious approach and a gradual increase in interest rates, emphasized that the appropriate path of policy would depend on economic and financial developments and their implications for the outlook and the risks around the outlook, which will be assessed at each meeting.

The minutes also signaled that the policymakers have not committed to continue to raise interest rates through the year, as the further steps will depend on the inflation and economic conditions.

The Fed also released in its January meeting the set of guidelines about how it plans to reduce the nearly $9 trillion portfolio of securities, with discussion of the balance sheet including debate about whether or not the sales of securities will be needed, though no decision have been made yet.