Fed officials firm up plans for a swift pullback of economic help.

Federal Reserve officials are coalescing around a plan to raise interest rates steadily starting in March and then move swiftly to shrink the central bank’s big bond holdings as policymakers look to cool the economy at a moment of rapid inflation.

Policymakers have spent the past week broadcasting that the interest rate increase they plan to make at their March meeting — one that investors already fully expect central bankers to make as they try to tame price increases — will be the first in a string of rate moves. Central bankers also appear to be converging on a plan to promptly start shrinking the Fed’s holdings of government-backed debt, which were vastly expanded during the pandemic downturn as the Fed snapped up bonds in a bid to keep markets functioning and cushion the economy.

The central bank bought $120 billion in Treasury and mortgage-backed securities for much of 2020 and 2021, but officials have been tapering those purchases and are on track to stop them entirely in March. By quickly pivoting to allow securities on its now nearly $9 trillion balance sheet to expire without reinvestment — reducing its holdings over time — the central bank would take away an important source of demand for government-backed debt and push rates on those securities higher. That would work together with a higher Fed policy interest rate to make many types of borrowing more expensive.

Higher borrowing costs should weigh on lending and spending, tempering demand and helping to slow price gains, which have been uncomfortably rapid. Fresh data out this week is expected to show further acceleration in the central bank’s preferred inflation gauge, which is already running at its fastest pace in 40 years.

Lael Brainard, a Fed governor who has been nominated by President Biden to serve as vice chair, said last week that she believed a “series” of rate increases were warranted.

Understand Inflation in the U.S.

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“I do anticipate that it will be appropriate, at our next meeting, which is in just a few weeks, to initiate a series of rate increases,” she said on Friday at a forum held by the University of Chicago’s Booth School of Business in New York. Ms. Brainard said that the Fed would then turn to shrinking its balance sheet, a process that could be appropriate to start “in coming meetings.”

Michelle Bowman, another Fed governor, echoed that balance sheet reduction could start imminently, saying in a speech on Monday that the Fed needs to begin to reduce the size of its bond holdings “in the coming months.”

The precise timing of balance sheet shrinking is a topic of debate. John C. Williams, president of the Federal Reserve Bank of New York, suggested on Friday that the process could start “later this year,” which could suggest in coming months or slightly later. But officials have been uniformly clear that a pullback is coming, and likely more quickly than investors had expected until just recently.

Although Fed policymakers plan to shrink their holdings of Treasury bonds and mortgage-backed securities by allowing securities to expire without reinvesting them, rather than by actively selling the debt, the central bank’s latest meeting minutes suggested that officials could eventually move to outright sales of mortgage-tied securities. The minutes also suggested that officials thought “a significant reduction” in the size of the balance sheet would be warranted.

The central bank’s planned moves would be a rapid pace of change compared to the last time they increased interest rates, from 2015 to the end of 2018. Then, officials shrank the balance sheet only gradually and pushed up interest rates glacially, once per quarter at fastest.

Borrowing costs have already begun to rise as investors adjust to the Fed’s more rapid-fire plans. Markets expect six or seven quarter-point interest rate increases this year. The rate on a 30-year mortgage has climbed from about 2.9 percent last fall — when the Fed began its policy pivot — to 3.9 percent now.

Inflation F.A.Q.

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What is inflation? Inflation is a loss of purchasing power over time, meaning your dollar will not go as far tomorrow as it did today. It is typically expressed as the annual change in prices for everyday goods and services such as food, furniture, apparel, transportation and toys.

What causes inflation? It can be the result of rising consumer demand. But inflation can also rise and fall based on developments that have little to do with economic conditions, such as limited oil production and supply chain problems.

Where is inflation headed? Officials say they do not yet see evidence that rapid inflation is turning into a permanent feature of the economic landscape, even as prices rise very quickly. There are plenty of reasons to believe that the inflationary burst will fade, but some concerning signs suggest it may last.

Is inflation bad? It depends on the circumstances. Fast price increases spell trouble, but moderate price gains can lead to higher wages and job growth.

How does inflation affect the poor? Inflation can be especially hard to shoulder for poor households because they spend a bigger chunk of their budgets on necessities like food, housing and gas.

Can inflation affect the stock market? Rapid inflation typically spells trouble for stocks. Financial assets in general have historically fared badly during inflation booms, while tangible assets like houses have held their value better.

The Fed’s policy changes “will bring inflation down over time, while sustaining a recovery that includes everyone,” Ms. Brainard said, adding that as the Fed signals that it will raise rates, “the market is clearly aligned with that.”

Yet with inflation rapid, wage growth strong and signs of taut labor market conditions plentiful, some Fed officials worry that the central bank needs to move even more quickly.

Ms. Bowman, for instance, said she was still open to half-percentage point increase in March — something her colleague James Bullard, president of the Federal Reserve Bank of St. Louis, has also suggested.

“I will be watching the data closely to judge the appropriate size of an increase at the March meeting,” Ms. Bowman said.

But Mr. Bullard, who has repeatedly said he would prefer to see rates rise by a full percentage point of rate increases by July, has also noted that he would defer to the chair, Jerome H. Powell, on the size of the initial increase. And other members of the Fed’s policy-setting committee have suggested that they do not think starting with a half-point increase is necessary, suggesting that a smaller increase may be more likely.

“There’s really no kind of compelling argument that you have to be faster right in the beginning,” Mr. Williams, president of the powerful Federal Reserve Bank of New York, told reporters last week.

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