Most members of the Federal Open Market Committee think an increase in the federal funds rate would be appropriate “relatively soon,” as long as incoming economic data show progress, according to minutes released Wednesday of their two-day November meeting.
“Some participants … argued that to preserve credibility, such an increase should occur at the next meeting,” while a few participants thought that significant downside risks remained, the minutes said.
A few participants wanted to increase the current 0.25%-0.5% target range at the Nov. 1-2 meeting, expressing concern that an extended period of low interest rates could intensify incentives for investors to reach for yield, “potentially leading to a mispricing of risk and misallocation of capital,” the minutes said.
One possibility raised by the Federal Reserve staff was whether changing the size and composition of the Federal Reserve's balance sheet, including duration, could help achieve macroeconomic goals if rates were as low as they could effectively go or even above that.
“A number of policymakers stated that they continued to view expansion of the balance sheet through large-scale asset purchases as an important tool to provide macroeconomic stimulus in situations in which short-term interest rates were at their effective lower bound. Most participants did not indicate support for using the balance sheet as an active tool in other situations or for other purposes,” the minutes said.
FOMC members next meet Dec. 13-14.