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However, participants remarked that the actual rise in inflation was larger than anticipated, with the 12-month change in the PCE price index reaching 3.

hawkish

Put another way, the FOMC could have "preemptively" tightened monetary policy, based on forecasts, but recognizing the uncertainties about empirical relationships chose not to do so.

neutral

This was also an era when the principal mortgage lenders, savings and loans, were sometimes constrained from satisfying mortgage demands by binding Regulation Q ceilings that eroded their deposit base when interest rates rose.

neutral

This difficulty of forecasting inflation has important implications, as we shall see.

neutral

With unemployment still elevated and inflation below the Committee’s longer-run objective, the Committee is continuing its highly accommodative policies.

dovish

Persistent inflation shortfalls carry the risk that longer-term inflation expectations become anchored below the stated inflation goal.13 In part because of that concern, some economists have advocated "makeup" strategies under which policymakers seek to undo past inflation deviations from target.

dovish

Accordingly, much stronger growth in such investment could occur, with concomitant effects on incomes and the growth of overall spending.

hawkish

The European Central Bank (ECB) began operating on June 1, 1998, and assumed responsibility for monetary policy in the euro area on January 1, 1999.

neutral

And as I mentioned, I think at the last press conference, estimates by the—by members of the Committee have moved down by a full percentage point since maybe 2012 as we’ve learned—as unemployment has dropped and inflation hasn’t really reacted.

neutral

survey-based measures of longer-term inflation expectations had changed little on balance.

neutral

If the FOMC were to tie mechanically our actions to market prices, then we would be placed in the sorry position of validating whatever whim that currently struck investors' fancy.

neutral

Staff Economic Outlook The projection for U. S. economic activity prepared by the staff for the April–May FOMC meeting was revised up on net.

hawkish

Al­though core inflation and the 12-month trimmed mean PCE inflation rate calculated by the Federal Reserve Bank of Dallas remained a little below 2 percent, many participants anticipated that high levels of resource utilization and stable inflation expectations would keep overall inflation near 2 percent over the medium term.

neutral

Members also agreed that their evaluation of progress on their objectives would take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

neutral

These interest rate changes also have effects on asset prices, and thereby on household wealth, as well as on the exchange value of the dollar and, thereby, on net exports and core import prices.7 However, relative to balance sheet policies, the influence of the short-term rate is far better understood and extensively tested: There have been several decades and many business cycles over which to measure and analyze how the federal funds rate affects financial markets and real activity.

neutral

In addition, any other imbalances are more likely to grow to worrisome proportions during an unsustainable boom and are more likely to unwind in a disruptive manner if confronted by rising inflation, sharply higher interest rates in response to higher inflation, and a subsequent recession.

neutral

This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

neutral

During the 1980s and 1990s, the Federal Reserve succeeded in bringing inflation down from double-digit levels to the average rate of about 2 percent that has prevailed over the past decade.

dovish

Consumer prices had edged up in recent months,

hawkish

In their discussion of the economic situation and the outlook, meeting participants agreed that information received over the intermeeting period indicated that the labor market had continued to strengthen and that economic activity had been rising moderately so far this year.

hawkish

But even for many other workers, a rapidly evolving work environment in which the skill demands of their jobs are changing can lead to very real anxiety and insecurity about losing their jobs.

neutral

Since inflation is unacceptably high, it doesn't make sense to have the nominal federal funds rate below near-term inflation expectations.

hawkish

For example, wages and prices that are set for some period in the future will of necessity embody the inflation expectations of the parties to the negotiation

neutral

In furtherance of these objectives, the Committee at this meeting established ranges for growth of M2 and M3 of 1 to 5 percent and 2 to 6 percent respectively, measured from the fourth quarter of 1998 to the fourth quarter of 1999.

neutral

Indeed, stock prices did not collapse in 1929 but only began to plummet when the depth of the general economic decline became apparent.

dovish

For example, we have used some of our work to look at interest rate risk and interest rate sensitivity and, you know, found generally that banks can also sustain a significant increase in long-term interest rates as well for a number of reasons, one of them being that higher interest rates increase their franchise value because it increases their net interest margin over time.

neutral

With regard to the outlook for inflation, the gap between actual and potential output was anticipated to diminish only slowly unless aggregate demand expanded much more rapidly than the members currently foresaw.

neutral

It isn’t the kind of inflation that’s spread broadly across the economy.

hawkish

The shock that the—from the pandemic was unprecedented both in its nature and in its size and in the amount of unemployment that it created and in the shock to economic activity.

dovish

It was not only capital spending and equity prices that seemed to overshoot in the late 1990s; credit was provided with undue optimism about prospects for repayment.

neutral

Against this background, the members agreed on the need to continue to monitor the economy with care for signs either of a potential upturn in inflation or greater softness in the expansion than they were currently forecasting and to be prepared to respond promptly in either direction.

neutral

The Committee then turned to a discussion of the economic and financial outlook and the implementation of monetary policy over the intermeeting period ahead.

neutral

As a result, national saving increased, providing further impetus to economic growth.

dovish

If the recent slower rate of price declines on high-tech products implied a softer underlying pace of technological change, both the outlook for investment demand and the prospects for persisting high trend growth in productivity could be damped relative to previous expectations.

neutral

The Committee continues to view changes in the target range for the federal funds rate as its primary means of adjusting the stance of monetary policy.

neutral

Well, that’s—what’s happening there is the fact that the relationship between resource utilization, or unemployment, and inflation has just gotten weaker and weaker over the years.

dovish

Several members reiterated that business spending was the critical factor that would govern to a substantial degree the timing and extent of the acceleration in overall economic activity.

neutral

Increasingly, it will be important for the Federal Reserve to take into account the effects of climate change and associated policies in setting monetary policy to achieve our objectives of maximum employment and price stability.

neutral

Actual or realized saving depends on the equilibrium values of the real interest rate and other economic variables.

neutral

And no, we’re not—we, we have not at all changed our view, and I haven’t changed my view that inflation running above 2 percent, moderately above 2 percent, is a desirable thing.

dovish

A number of commodity price indexes have indeed risen sharply over the past couple of years, including a large jump in the past several months.

neutral

With regard to the outlook for inflation, members referred to widespread indications of increasingly tight labor markets and to statistical and anecdotal reports of faster increases in labor compensation.

hawkish

Financial markets seem to think the same—5-year breakeven inflation expectations are around 2.5 percent, and 5-year, 5-year-forward measures are around 2 percent, when adjusted for the difference between CPI (consumer price index) and PCE (personal consumption expenditures) inflation rates.6 Hence, markets do not believe the current factors pushing up inflation will last for long.

neutral

Admittedly, some of the wage increases is being eaten away by inflation.

hawkish

The projection for core PCE price inflation in 2008 was raised slightly in response to elevated readings in recent months.

hawkish

Waiting too long to begin moving toward the neutral rate could risk a nasty surprise down the road--either too much inflation, financial instability, or both.

hawkish

Several commented that an asymmetric directive did not imply a commitment to tighten monetary policy at some point, whether during the intermeeting period or at a future meeting, but it did imply the need for special vigilance.

hawkish

You know, stimulating aggregate demand is one thing, but where there’s a part of the economy that kind of will be resistant to that, you also need fiscal policy.

dovish

In response to evidence of a slowdown in economic activity and a rapid waning of inflationary pressures, central banks around the world eased policy sharply.

dovish

And the growth of telegraphy enabled railroads to better coordinate the movement of trains over a wider area.

neutral

Although many participants remained concerned about downside risks attending the outlook for inflation, a majority of participants saw the risks to the outlook for inflation as balanced.

neutral

In the absence of legislation, going appreciably further in the direction of prioritizing price stability, as would be implied by a numerical target that was expected to be achieved most of the time, would be potentially damaging to the democratic balance and would risk a backlash.

dovish

A surge in nonfarm business inventory investment accounted for a substantial portion of the acceleration in output in the first quarter, and an anticipated moderation in the accumulation of inventories was an important element in forecasts of greatly reduced economic growth in the current quarter.

dovish

The increase in upside risks to domestic demand and the diminution of foreign risks together suggest that risks to the outlook are more balanced today than they had been for the preceding two years.

neutral

Many of our critics tend to focus only on the inflation aspect of our mandate and ignore the employment leg of our mandate.

dovish

President George dissented because she believed that an unchanged setting of policy was appropriate based on the incoming data and the outlook for economic activity over the medium term.

neutral

Millions of new jobs have been created in the last few years; and unemployment, now at 4.3 percent, has been at or below 5 percent for over two years.

hawkish

We also said we wouldn’t raise rates just in response to very low unemployment, in the absence of inflation.

dovish

These are exactly the concerns expressed in Tom Sargent’s (2000) book on the rise and fall of U.S. inflation, in which he worries that a misunderstanding of the inflation process might again lead to a high-inflation equilibrium.

hawkish

Measures of inflation compensation based on Treasury Inflation-Protected Securities (TIPS) edged up, on net, remaining close to their pre-pandemic levels.

hawkish

Several participants expressed the view that a decision regarding the long-run composition of the portfolio would not need to be made for some time, and a couple of participants highlighted the importance of making such a decision in the context of the ongoing review of the Federal Reserve's monetary policy strategies, tools, and communications practices.

neutral

It isn’t really just targeting the headline numbers, but it’s about taking all of those things into account in your thinking about what constitutes maximum employment.

neutral

In addition, some of the correlation may reflect the effect of the response of monetary policy to exchange rate developments.

neutral

There are, however, some problems with this story as the principal explanation for the favorable inflation performance.

neutral

At the conclusion of the discussion, the Committee voted to authorize and direct the Federal Reserve Bank of New York, until it was instructed otherwise, to execute transactions in the System Account in accordance with the following domestic policy directive: "The Federal Open Market Committee seeks monetary and financial conditions that will foster price stability and promote sustainable growth in output.

hawkish

Consumer price inflation had remained relatively subdued over the summer months.

dovish

At these low rates, the central bank is poorly positioned to respond to further negative demand shocks.

hawkish

Inflation pressures remain muted, and indicators of longer-term inflation expectations are at the lower end of their historic ranges.

dovish

Conclusion: The Challenge Facing Monetary Policy This analysis suggests that monetary policy does face a challenge--rebalancing aggregate supply and demand to contain the risk of higher inflation.

hawkish

The lagged effects of the earlier rise in the foreign exchange value of the dollar were expected to place continuing, though diminishing, restraint on the demand for U. S. exports for some period ahead and to lead to further substitution of imports for domestic products.

dovish

So those who can get credit, together with the low prices of houses, are at—able to buy much more house than they could have a few years ago.

dovish

Participants' Views on Current Conditions and the Economic Outlook In conjunction with this FOMC meeting, members of the Board of Governors and Federal Reserve Bank presidents submitted their projections of the most likely outcomes for real GDP growth, the unemployment rate, inflation, and the federal funds rate for each year from 2015 through 2018 and over the longer run, conditional on each participant's judgment of appropriate monetary policy.

neutral

And I really don’t have much for you other than to say that they will be data dependent—that, over time, the stance of policy will be adjusted to try to keep the economy on a track where we see continuing progress toward achieving our goals of maximum employment and price stability.

hawkish

The behavior of the monetary aggregates will continue to be evaluated in the light of progress toward price level stability, movements in their velocities, and developments in the economy and financial markets.

neutral

So that means a more prolonged shortfall of inflation.

neutral

In contrast, Robert Lucas and others reached more dramatic conclusions, arguing that only unpredictable movements in monetary policy can affect the real economy and concluding that policy has no capacity to smooth the business cycle (Lucas, 1972; Sargent and Wallace, 1975).

neutral

In their consideration of the appropriate stance of monetary policy, participants concurred that the labor market was very tight and that inflation was far above the Committee's 2 percent inflation objective.

hawkish

However, asset purchases are not on a preset course, and the Committee's decisions about their pace will remain contingent on the Committee's outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of such purchases.

neutral

These forecasts and forward guidance had a significant effect on raising market interest rates, even though we did nothing with our primary policy tool, the federal funds rate, in December 2021.

hawkish

And—but inflation expectations did not move strongly down here in the United States.

hawkish

If inflation remains higher during the course of 2022, then we may already have met that test by the time we reach liftoff.

neutral

In the near term, the 12-month change in PCE prices was expected to move above 2 percent as the low inflation readings from the spring of last year drop out of the calculation.

neutral

The Summary of Economic Projections by FOMC participants in December 2020 had the unemployment rate moving down to 4.2 percent at the end of 2022 and inflation moving up to 2 percent only in 2023.

dovish

Does the rapid growth in cross-border capital flows limit or even eliminate the ability of domestic monetary policy to affect domestic interest rates?

neutral

Monetary Policy With that outlook in mind, let me turn to monetary policy.

neutral

Participants' concerns about inflation prospects generally had increased over the intermeeting period.

hawkish

First, with more complete information available, markets will price financial assets more efficiently.

neutral

Following these swings, inflation was expected to finish the year at just below 2 percent.

dovish

Output was forecast to expand at a rate a little above the staff's estimate of its potential rate of growth in 2019 through 2021 and then to slow to a pace slightly below potential output growth in 2022.

neutral

Already, various trimmed price indexes are running much closer to 2 percent.

neutral

To the extent that the combination of a low neutral rate, a flat Phillips curve, and low underlying inflation may lead financial imbalances to become more tightly linked to the business cycle, it is important to use tools other than monetary policy to temper the financial cycle.

neutral

The Survey of Market Participants conducted by the Federal Reserve Bank of New York indicates a shift in expectations following the release of the new monetary policy framework.17 The median expected rate of unemployment at the time of liftoff moved down from 4.5 percent in the July survey, before the release of the framework, to 4.0 percent in the September and subsequent surveys, following the release of the new framework.

neutral

In a traditional growth accounting setup, these effects would show up in multifactor productivity growth.

neutral

In their discussion of the balance-of-risks sentence in the press statement to be issued shortly after this meeting, all the members agreed that the latter should continue to express, as it had for every meeting earlier this year, their belief that the risks remained weighted toward rising inflation.

hawkish