After their meeting this month, policymakers raised their short-term policy rate by half a point, double the usual hike. According to minutes from the May 3-4 meeting released Wednesday, most officials agreed that half-point hikes “would probably be appropriate” at their next two meetings, in June and July. Chairman Jerome Powell himself had indicated after this month’s meeting that half-point increases would be “on the table” at the next two meetings.

All officials said the Fed should “rapidly” raise its key rate to a level at which it neither stimulates nor hinders growth, which officials say is about 2.4%. Some policymakers have said they will likely reach that point by the end of this year.

The minutes suggest, however, that there could be heated debate among policymakers over how quickly to tighten credit after the June and July meetings. The economy has shown more signs of improvement and stock markets have fallen sharply since the Fed meeting.

Government reports have shown, for example, that sales of new and existing homes have slowed sharply since Fed meetings, and there are signs that factory output is growing more slowly. Gennadiy Goldberg, senior rate strategist at TD Securities, suggested that Wednesday’s minutes may reflect a more “hawkish” Fed – that is, more focused on rate hikes to contain inflation – that may not be the case now.

Some officials, including Raphael Bostic, president of the Federal Reserve Bank of Atlanta, have indicated since this month’s meeting that the Fed may reconsider its pace of rate hikes in September.

At the meeting, Fed officials agreed to raise their benchmark rate to a range of 0.75% to 1%, their first increase of this size since 2000. Officials also announced that they would begin cutting their massive $9 trillion balance sheet, which has more than doubled since the pandemic.

The balance sheet swelled as the Fed regularly bought about $4.5 trillion in Treasuries and mortgage bonds after the pandemic recession in an attempt to hold longer-term rates. On June 1, the Fed plans to let these securities mature, without replacing them. It should also increase the cost of long-term borrowing.

Powell said the Fed was determined to raise rates high enough to contain inflation, leading many economists to expect the fastest pace of rate hikes in three decades this year. Powell says the central bank is aiming for a “soft landing,” in which higher interest rates cool borrowing and spending enough to slow the economy and slow inflation. But most economists are skeptical of the Fed’s ability to achieve such a narrow outcome without causing an economic downturn.

Stock prices plunged on fears that the Fed’s rate hikes could push the economy into recession. The S&P 500 has fallen for seven straight weeks, the longest such stretch since the aftermath of the dotcom bubble in 2001. The stock index nearly fell into bearish territory last week – defined as a 20% drop from at its peak – but rallied on Wednesday.

The minutes also showed that some policymakers decided it was appropriate to consider selling some of his mortgage-backed securities holdings, rather than just letting them mature. The sales would facilitate the Fed’s transition to a portfolio consisting primarily of Treasuries, according to the minutes. The Fed didn’t mention any timeline for those sales, but said they would be “announced well in advance.”

The Fed said in September it would allow up to $30 billion in mortgage-backed securities to mature each month, along with $60 billion in Treasury bills. Many analysts doubt that the ceiling will be reached for mortgage-backed bonds, as mortgage rates have jumped more than two percentage points since the start of the year. This means that fewer homeowners will refinance their mortgage because their current loan rates are lower than what is now available in the mortgage market.

Less refinancing would force the Fed to sell mortgage-backed securities to maintain its plans to shrink its balance sheet.

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