Meeting Date: May 3-4, 2022
Federal Open Market Committee (FOMC) Meeting Results
FOMC highlights:
1. The Fed increased its Target Fed Funds rate by 0.5%. The new range is 0.75%-1%.
2. The FOMC also announced a phased-in security run-off program of its balance sheet.
3. The rate hike and balance sheet reduction together represent the most aggressive tightening of monetary policy in years.
4. The 0.5% increase in the Fed Funds rate is very unusual. The Fed normally raises rate in 0.25% increments. The last time the Fed increased rate by that much was over 20 years ago.
5. The Federal Open Market Committee’s decision was approved unanimously.
6. Finally, in a statement that led many observers to think that this is just the beginning of the tightening episode, the FOMC exclaimed, “ongoing increases in the target range will be appropriate.”
Economic Highlights:
Job growth was strong, but economic activity edged downward, and inflation remains elevated!
• “Although overall economic activity edged down in the first quarter, household spending and business fixed investment remained strong. Job gains have been robust in recent months, and the unemployment rate has declined substantially.
• Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices and broader price pressures.
• The invasion of Ukraine by Russia is causing tremendous human and economic hardship. The implications for the U.S. economy are highly uncertain. The invasion and related events are creating additional upward pressure on inflation and are likely
to weigh on economic activity. In addition, COVID-19-related lockdowns in China are likely to exacerbate supply chain disruptions. The Committee is highly attentive to inflation risks.”
Announcements:
Fed funds rate increased. Fed funds range raised by a 0.5% to 0.75%-1%. Fed will begin to shrink its $9 trillion security portfolio.
• “The Committee seeks to achieve maximum employment and inflation at the rate of 2% over the longer run. With appropriate firming in the stance of monetary policy, the Committee expects inflation to return to its 2% objective and the labor market to remain strong.
• In support of these goals, the Committee decided to raise the target range for the federal funds rate to 0.75%-1% and anticipates that ongoing increases in the target range will be appropriate.
• In addition, the Committee decided to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities on June 1. The Fed will permit $30 billion in Treasuries and $17.5 billion in mortgage bonds
to roll off every month in June, July and August. Beginning in September, they will allow $60 billion in treasuries and $35 billion in mortgage securities to run off monthly.
• “In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy
as appropriate if risks emerge that could impede the attainment of the Committee’s goals.
• The Committee's assessments will consider a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments.”
• The Board of Governors of the Federal Reserve System voted unanimously to raise the interest rate paid on reserve balances to 0.9%, effective May 5, 2022.
Voting Results:
Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; James Bullard; Esther L. George; Patrick Harker; Loretta J. Mester; and Christopher J. Waller. Patrick Harker
voted as an alternate member at this meeting.
Next Meeting: June 14-15, 2022