On January 5 the Federal Reserve released minutes from their December 14-15 meeting which laid plans to move away from their current policy stance faster than previously anticipated due to inflation rising higher than expected and a recovery in the US labour market.

On review of the minutes, policymakers signaled six rate rises over the next two years as inflationary concerns continue. In addition to the rate rises, minutes revealed the Reserve’s intentions to reduce their $9 trillion balance sheet (Almost double its position pre-pandemic).

Minutes stated: “Almost all participants agreed that it would likely be appropriate to initiate balance sheet runoff at some point after the first increase in the target range for the federal funds rate. However, participants judged that the appropriate timing of balance sheet runoff would likely be closer to that of policy rate lift-off than in the Committee’s previous experience.”

The minutes caused a minor correction in US stock markets.

While the change in tone, specifically regarding the pace at which the policy changes are expected to take place, is a surprise to many, we do not believe this will make a significant impact on the long term success of the US.