Several Fed Officials Wanted Larger March Rate Hike Despite Russia Uncertainty

When policymakers gathered in mid-March, they also flagged forces in the economy that could cause inflation, already running at 40 year highs, to persist even longer. That included Russia’s recent invasion, subsequent sanctions, wage pressures resulting from the tight table market and global supply chain disruptions that are threatening food and energy prices.

“Many participants noted that one or more [half-percentage-point] increases in the target range could be appropriate at future meetings, particularly if inflation pressures remained elevated or intensified,” according to the minutes, which were released on Wednesday. The minutes did not specify how many board members favored more aggressive measures.

Minutes from the Fed’s meeting on March 15 and 16 offer new details about one the central bank’s most consequential decisions of the pandemic. Officials raised rates at a modest quarter of a percentage point and penciled in as many as seven total rate hikes in 2022. The move came as the Fed continued to come under intensifying pressure to combat rising prices before they become even more entrenched.

Over the past few weeks, a growing number of Fed officials have publicly said more aggressive hikes would be needed when officials convene again in early May.

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Speaking before the National Association for Business Economics last month, Fed Chair Jerome H. Powell was asked what would keep the Fed from raising rates by 0.50 percentage points at the Fed’s next meeting. Powell’s response: “Nothing.”

A nationwide worker shortage and a tighter labor market is also contributing to inflation. Fed officials noted that wage gains had been strong, especially among lower-wage earners. But policymakers also said that their business contacts across the country have had to pass those wage increases, and rising costs of doing business, to customers. Economists have warned such a wage-price spiral can be an ever harder form of inflation for the Fed to interrupt.

Economists and the markets were eager to see the Federal Reserve minutes today, including details about how the Fed will start scaling back its enormous $9 trillion balance sheet, expected in May. No final decisions were made at the March meeting, but officials generally agreed on a plan that would shrink the balance sheet — including Treasury securities and agency mortgage-backed securities — by a maximum of $95 billion per month. That’s a faster pace than the last time they shrunk the Fed’s balance sheet between 2017 and 2019.

While the Fed’s primary way of combating inflation is by raising interest rates, officials have said drawing down the balance sheet could add some momentum to the upcoming rate hikes, and act as a powerful substitute in place of another increase.

“It is of paramount importance to get inflation down,” Fed Gov. Lael Brainard said Tuesday a conference hosted by the Minneapolis Fed. “Accordingly, the committee will continue tightening monetary policy methodically through a series of interest-rate increases and by starting to reduce the balance sheet at a rapid pace as soon as our May meeting.”