Minutes Show Fed Ready to Take Action, Mentions Crypto and Stablecoin Risks

The Federal Reserve is ready to raise interest rates and reduce its balance sheet, according to minutes released Wednesday.

Fed officials agreed that “if inflation does not move down as they expect, it would be appropriate for the committee to remove policy accommodation at a faster pace than they currently anticipate,” said the minutes of the Federal Open Markets Committee’s (FOMC) January meeting.

They also noted that “a significant reduction in the size of the balance sheet would likely be appropriate.” The Fed has increased its total assets to about $9 trillion now from about $4 trillion in early 2020.

The cryptocurrency market, including stablecoins, was also a topic of discussion during the Fed’s January meeting, for the first time since July 2021.

Fed officials raised concerns about the significant growth of the crypto industry, and “some participants saw emerging risks to financial stability associated with the rapid growth in crypto-assets and decentralized finance platforms,” the meeting summary stated.

Regarding stablecoins, the Fed mentioned a potential run risk, which characterizes them as “another vulnerability in funding markets.”

While the minutes are widely watched nationwide, CoinDesk reported earlier that traders seem to have already moved on and are focusing on the Federal Reserve’s next meeting in March, when the central bank is expected to start hiking rates.