WASHINGTON (AP) — Federal Reserve officials are signaling they will take a more aggressive approach to tackling high inflation in the months ahead — actions that will make borrowing significantly more expensive for consumers and businesses and increase risks to the economy.

In minutes from their policy meeting three weeks ago, released Wednesday, Fed officials said aggressive half-point rate hikes, rather than traditional quarter-point increases, “could appropriate” several times this year. At last month’s meeting, many Fed policymakers favored a half-point hike, the minutes show, but waited due to uncertainties created by the US invasion of Ukraine. Russia. Instead, the Fed raised its key short-term rate by a quarter point and signaled that it planned to continue raising rates until next year.

The minutes say the Fed is also moving closer to rapidly reducing its massive $9 trillion bond inventory in the coming months, a move that would help drive up borrowing costs. Policymakers said they would likely reduce their holdings by about $95 billion a month, nearly double the pace they implemented five years ago when they last reduced their balance sheets.

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The plan to rapidly reduce their bond holdings marks the latest move by Fed officials to step up their inflation-fighting efforts. Prices are rising at the fastest rate in four decades, and officials in recent speeches have voiced growing concern about getting inflation under control.

Financial markets are now expecting much steeper increases this year than announced by Fed officials at their mid-March meeting.

Higher Fed rates will increase borrowing costs for mortgages, auto loans, credit cards and business loans. By doing so, the Fed hopes to slow economic growth and rising wages enough to contain high inflation, which has hurt millions of households and poses a serious political threat to President Joe Biden.

Many economists said they worried the Fed waited too long to start raising rates and that policymakers might end up reacting so aggressively that they would trigger a recession.

Chairman Jerome Powell opened the door two weeks ago to a rate hike of up to half a point at future meetings, rather than the traditional quarter point. The Fed hasn’t made a half-point rate hike since 2000. Key Fed Board member Lael Brainard and other officials have also made it clear that such large increases are possible. Most economists now expect the Fed to hike rates by half a point at its May and June meetings.

In a speech on Tuesday, Brainard highlighted the Fed’s growing aggressiveness, saying central bank bond holdings will “shrink significantly faster” over “a much shorter period” than the last time the Fed reduced its balance sheet. , from 2017 to 2019. At that time, the balance sheet was around $4.5 trillion. Now it’s twice as big.

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The Fed bought trillions of dollars in Treasuries and mortgage-backed securities after the pandemic hit the economy, in an effort to drive down longer-term borrowing rates. It also cut its benchmark short-term rate to near zero. Last month, it raised that rate to a range between 0.25% and 0.5%, its first increase in three years.

In a sign of how quickly the Fed is reversing policy, the last time the Fed bought bonds there was a three-year gap between when it stopped buying, in 2014, and when it began to reduce the balance sheet, in 2017. Now, this change should occur in as little as three months, according to economists.

Brainard’s remarks prompted a sharp rise in the interest rate on the 10-year Treasury bill, a key rate that influences mortgage rates, business loans and other borrowing costs. On Wednesday, this rate reached 2.6%, against 2.3% a week earlier, a sharp increase for this rate. A month ago, it was only 1.7%.

Shorter-term bond yields jumped even higher, in some cases above the 10-year yield, a trend that has in the past been seen as a sign of an impending recession. Fed officials, however, say short-term bond yields are not sending the same warning signals.


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