At last month’s meeting, many of the Fed policymakers favored a half-point increase, the minutes said, but held off then because of the uncertainties created by Russia’s invasion of Ukraine.
The minutes said the Fed is also moving closer to rapidly shrinking its huge $9 trillion stockpile of bonds in the coming months, a move that would contribute to higher borrowing costs.
The plan to quickly draw down their bond holdings marks the latest move by Fed officials to accelerate their inflation-fighting efforts.
Financial markets now expect much steeper rate hikes this year than Fed officials had signaled as recently as their meeting in mid-March.
Higher rates from the Fed will heighten borrowing costs for mortgages, auto loans, credit cards and corporate loans.
Chair Jerome Powell opened the door two weeks ago to increasing rates by as much as a half-point at upcoming meetings, rather than by a traditional quarter-point.
In a speech Tuesday, Brainard underscored the Fed’s increasing aggressiveness by saying that the central bank’s bond holdings will “shrink considerably more rapidly” over “a much shorter period” than the last time the Fed reduced its balance sheet, from 2017-2019.
After the pandemic hammered the economy two years ago, the Fed bought trillions in Treasury and mortgage bonds, with the goal of lowering longer-term borrowing rates.
As a sign of how fast the Fed is reversing course, the last time the Fed bought bonds, there was a three-year gap between when it stopped its purchases, in 2014, and when it began reducing the balance sheet, in 2017.
Brainard’s remarks caused a sharp rise in the interest rate on the 10-year Treasury note, a key rate that influences mortgage rates, business loans and other borrowing costs.
Shorter-term bond yields have jumped even higher, in some cases to above the 10-year yield, a pattern that has in the past been seen as a sign of an impending recession.
Economists estimate that reducing the Fed’s balance sheet by $1 trillion a year would be equal to anywhere from one to three additional quarter-point increases in the Fed’s benchmark short-term rate.