Minutes released Wednesday show that Federal Reserve officials talked about how to decrease their trillions of bond holdings during their March meeting. They reached a consensus figure around $95 billion.

Officials agreed that there would be a ceiling of $60 billion for Treasurys, and $35 billion for mortgage-backed securities. This limit will gradually increase over the next three months.

The Fed approved the Fed’s first increase in interest rates for more than three decades at the meeting. The 25 basis point increase — a quarter percentage point — lifted the benchmark short-term borrowing rate from the near-zero level where it had been since March 2020.

The balance sheet discussion was not the only topic. Officials discussed the rate of future interest rate increases, and members favored more aggressive measures.

This means that there could be a rate increase of 50 basis points at the upcoming meetings. It is consistent with market prices for May’s vote. There was a lot of support for going higher in May.

“Many participants noted that — with inflation well above the Committee’s objective, inflationary risks to the upside, and the federal funds rate well below participants’ estimates of its longer-run level — they would have preferred a 50 basis point increase in the target range for the federal funds rate at this meeting,” the minutes said.

Officials were discouraged from making the 50-basis point move because they weren’t sure what the outcome of the conflict in Ukraine would be.

The Fed’s relative hawkishness also extended to balance sheet talks. Some wanted no monthly runoff caps, but others supported “relatively low” limits.

In the balance sheet rundown, the Fed will allow a certain amount of maturing securities proceeds to be rolled off every month and reinvest the remainder. Shorter-term Treasury bills will be targeted because they are “highly valued” as liquid and safe assets.

Officials did not vote, but the minutes revealed that the members had agreed to start the process in May.

Fed officials increased their inflation outlook sharply and reduced their economic growth forecasts at the meeting.

The minutes were released by the Fed Chairman Jerome Powell to provide details on where monetary policy is headed. Jerome Powell, Fed Chairman, stated that details would be included in the minutes regarding balance sheet reduction.

In the aftermath of the pandemic, the Fed increased its holdings by $9 trillion or more than twice during monthly bond purchases. These purchases stopped a month after evidence showed that the U.S. was experiencing a roaring inflation rate higher than any time since the 1980s. Volcker intervened to stop the surge and he steered the country into recession.

In recent times, policymakers have become increasingly adamant about the need to control inflation.

On Tuesday, Governor Lael Brainard stated that to bring down prices it will take a mix of gradual hikes and aggressive reductions in the balance sheets. The market expects the Fed will raise rates by 250 basis points in total this year.

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