Financial markets were quick to price in the “hawkish” message they read into the entangled debate in the minutes of the past Fed meeting that now surfaced three weeks after the meeting itself, in line with the latest decision. Many agree that with faster release the minutes is likely to have more impact on the financial markets. This time, the expectations of higher inflation by Fed policymakers added to the likelihood of the Fed switch to a more aggressive monetary tightening at its next meeting scheduled for Feb. 1-2. Bond yields were up, and stocks sank dragging Dow Jones industrial average 100 points down.

The minutes showed that the Fed gave little weight to the disappointing November employment figures. Comparison to other data indicated “that the economic expansion was firmly established and had proven quite resilient in the face of rising oil prices and the reduction in policy accommodation”.

“Although the November employment report had been disappointing, when viewed over several months, labour market conditions were generally seen as improving,” the minutes said.

The financial policymakers believed that even with the recent rate hikes the level of the borrowing costs was low.

"Even with this action, the current level ... remained below the level it most likely would need to reach to keep inflation stable and output at its potential," the Fed said in minutes from the Dec. 14 meeting.

"With the economic expansion more firmly entrenched, cost and price pressures were likely to become a clearer intermediate-term risk to sustained good economic performance, absent further" interest rate raises.
A few committee members were apprehensive that an extensive period of low rates led to “excessive risk-taking in financial markets”.

Some speakers indicated that the recent surge in the inflation compensation supported by Treasury index linked securities “might be a warning sign that expectations were not as well anchored as they had been over the summer”.

Minutes showed that some Fed members insisted that the “measured” pace of accommodation is too slow. However, readers were not able to identify the participants of the discussion, as their names are not given in the document.