Fed Minutes Reflect Growing Unease Over High Inflation

Some officials also thought the Fed should start shrinking its $8.76 trillion portfolio of bonds and other assets relatively soon after beginning to raise rates, the minutes said.

Most central bank officials, in projections released after that meeting, penciled in at least three quarter-percentage-point rate increases this year. In September, around half of those officials thought rate increases could wait until 2023.

For months, Fed leaders stuck to a view that higher price pressures in 2021 were caused primarily by supply-chain bottlenecks and would ease on their own. But Fed Chairman

Jerome Powell

had before the meeting signaled much less conviction about that forecast, and officials on the policy-setting committee last month broadly shared his views.

“While participants generally continued to anticipate that inflation would decline significantly over the course of 2022 as supply constraints eased, almost all stated that they had revised up their forecasts of inflation for 2022 notably, and many did so for 2023 as well,” the minutes said.

One immediate sign of their concerns could be seen from plans they approved at that meeting to more quickly scale back, or taper, their asset purchases. The Fed wants to end the bond-buying program, a form of economic stimulus, before it lifts short-term rates to curb inflation.

The earlier end to asset purchases—in March, instead of June—opens the door for officials to start raising rates from near zero at their second scheduled meeting this year, in mid-March. The Fed’s next meeting is Jan. 25-26.

“The whole point of accelerating the tapering was…so the March meeting could be a live meeting” to raise rates, said Fed governor

Christopher Waller

in remarks on Dec. 17. “That was the intent.”

Officials in their postmeeting statement described their goal of inflation moderately exceeding their 2% target as being met, one of two key criteria the central bank has laid out to justify raising rates. Officials said they hadn’t yet met the other criterion, achieving labor market conditions consistent with maximum employment.

But the minutes showed that most officials believe they could “fast approach” meeting that goal if recent hiring progress continues. Several officials said higher inflation pressures could force the Fed to raise rates before that goal had been met, and some officials also thought that the maximum employment criterion had already been met.

Write to Nick Timiraos at nick.timiraos@wsj.com