Federal Reserve — FOMC Statement (USA, 2022)

Minutes of the Federal Open Market Committee September 20 21, 2022 A joint meeting of the Federal Open Market Committee and the Board of Governors of the Federal Reserve Sys- tem was held in the offices of the Board of Governors on Tuesday, September 20, 2022, at 1:00 p.m. and con- tinued on Wednesday, September 21, 2022, at 9:00 a.m.1 Attendance Jerome H. Powell, Chair John C. Williams, Vice Chair Michael S. Barr Michelle W. Bowman Lael Brainard James Bullard Susan M. Collins Lisa D. Cook Esther L. George Philip N. Jefferson Loretta J. Mester Christopher J. Waller Charles L. Evans, Patrick Harker, Neel Kashkari, Lorie K. Logan, and Helen E. Mucciolo, Alternate Members of the Committee Thomas I. Barkin, Raphael W. Bostic, and Mary C. Daly, Presidents of the Federal Reserve Banks of Richmond, Atlanta, and San Francisco, respectively James A. Clouse, Secretary Matthew M. Luecke, Deputy Secretary Brian J. Bonis, Assistant Secretary Michelle A. Smith, Assistant Secretary Mark E. Van Der Weide, General Counsel Trevor A. Reeve, Economist Stacey Tevlin, Economist Beth Anne Wilson, Economist Jose Acosta, Senior Communications Analyst, Division of Information Technology, Board David Altig, Executive Vice President, Federal Reserve Bank of Atlanta Kartik B. Athreya, Executive Vice President, Federal Reserve Bank of Richmond Penelope A. Beattie,3 Section Chief, Office of the Secretary, Board James P. Bergin, Deputy General Counsel, Federal Reserve Bank of New York Camille Bryan, Senior Project Manager, Division of Monetary Affairs, Board Michele Cavallo, Principal Economist, Division of Monetary Affairs, Board Stephanie E. Curcuru, Deputy Director, Division of International Finance, Board Marnie Gillis DeBoer, Senior Associate Director, Division of Monetary Affairs, Board Sarah Devany, First Vice President, Federal Reserve Bank of San Francisco Michael Dotsey, Executive Vice President, Federal Reserve Bank of Philadelphia Burcu Duygan-Bump, Special Adviser to the Board, Division of Board Members, Board Rochelle M. Edge, Deputy Director, Division of Monetary Affairs, Board Matthew J. Eichner,4 Director, Division of Reserve Bank Operations and Payment Systems, Board Shaghil Ahmed, Joseph W. Gruber, Carlos Garriga, and William Wascher, Associate Economists Patricia Zobel,2 Manager pro tem, System Open Market Account Jon Faust, Senior Special Adviser to the Chair, Division of Board Members, Board Andrew Figura, Associate Director, Division of Research and Statistics, Board 1 The Federal Open Market Committee is referenced as the  FOMC  and the  Committee  in these minutes; the Board of Governors of the Federal Reserve System is referenced as the  Board  in these minutes. 2 In the absence of the manager, the Committee s Rules of Organization provide that the deputy manager acts as manager pro tem. 3 Attended Tuesday s session only. 4 Attended through the discussion of developments in finan- cial markets and open market operations. Page 1_____________________________________________________________________________________________ Glenn Follette, Associate Director, Division of Michelle M. Neal, Head of Markets, Federal Reserve Research and Statistics, Board Bank of New York Joshua Gallin, Senior Special Adviser to the Chair, Edward Nelson, Senior Adviser, Division of Monetary Division of Board Members, Board Affairs, Board Michael S. Gibson, Director, Division of Supervision Giovanni Olivei, Senior Vice President, Federal and Regulation, Board Reserve Bank of Boston Luca Guerrieri, Deputy Associate Director, Division of Anna Paulson, Executive Vice President, Federal Financial Stability, Board Reserve Bank of Chicago Diana Hancock, Senior Associate Director, Division of Karen M. Pence,5 Deputy Associate Director, Division Research and Statistics, Board of Research and Statistics, Board Valerie S. Hinojosa, Section Chief, Division of Andrea Raffo, Senior Vice President, Federal Reserve Monetary Affairs, Board Bank of Minneapolis Matteo Iacoviello, Senior Associate Director, Division Linda Robertson, Assistant to the Board, Division of of International Finance, Board Board Members, Board Jane E. Ihrig, Special Adviser to the Board, Division of Jeremy B. Rudd, Senior Adviser, Division of Research Board Members, Board and Statistics, Board Callum Jones, Senior Economist, Division of Monetary Achilles Sangster II, Senior Information Manager, Affairs, Board Division of Monetary Affairs, Board Edward S. Knotek II, Senior Vice President, Federal John W. Schindler, Special Adviser to the Board, Reserve Bank of Cleveland Division of Board Members, Board Sylvain Leduc, Executive Vice President, Federal Samuel Schulhofer-Wohl, Senior Vice President, Reserve Bank of San Francisco Federal Reserve Bank of Dallas Andreas Lehnert, Director, Division of Financial Seth Searls,4 Associate Director, Federal Reserve Bank Stability, Board of New York Paul Lengermann, Assistant Director, Division of Nitish R. Sinha, Special Adviser to the Board, Division Research and Statistics, Board of Board Members, Board Kurt F. Lewis, Special Adviser to the Board, Division John J. Stevens, Senior Associate Director, Division of of Board Members, Board Research and Statistics, Board Dan Li, Assistant Director, Division of Monetary Annette Vissing-J rgensen, Senior Adviser, Division of Affairs, Board Monetary Affairs, Board Laura Lipscomb, Special Adviser to the Board, Division of Board Members, Board David L pez-Salido, Senior Associate Director, Division of Monetary Affairs, Board Jonathan P. McCarthy, Economic Research Advisor, Federal Reserve Bank of New York Ann E. Misback, Secretary, Office of the Secretary, Board Jeffrey D. Walker,4 Associate Director, Division of Reserve Bank Operations and Payment Systems, Board Min Wei, Senior Associate Director, Division of Monetary Affairs, Board Paul R. Wood, Special Adviser to the Board, Division of Board Members, Board Nathaniel Wuerffel, Head of Domestic Markets, Federal Reserve Bank of New York 5 Attended from the discussion of the economic and financial situation through the end of Wednesday s session. Page 2Federal Open Market Committee_____________________________________________________________________________________________ Rebecca Zarutskie, Special Adviser to the Board, Division of Board Members, Board Andrei Zlate, Group Manager, Division of Monetary Affairs, Board Developments in Financial Markets and Open Market Operations The manager pro tem turned first to a discussion of fi- nancial market developments over the intermeeting pe- riod. U.S. financial conditions tightened over the period, largely reflecting an upward revision in investors  out- look for the path of the policy rate. Treasury yields climbed substantially, with most of the upward move re- flected in real yields. Equity prices initially rose amid second-quarter earnings reports that were better than feared but later retraced those gains in response to the shifting policy outlook. Regarding international devel- opments, yields in most advanced foreign economies (AFEs) also rose sharply as a number of other central banks lifted policy rates and indicated in their communi- cations that they would likely continue to tighten mone- tary policy in order to address inflation pressures. The exchange value of the dollar appreciated notably, reach- ing multidecade highs in real terms, as market partici- pants perceived mounting economic challenges abroad. The market-implied path of the federal funds rate shifted sharply higher after market participants interpreted Fed- eral Reserve communications particularly those pro- vided at the Jackson Hole symposium along with in- coming data, as indicating a more restrictive path of pol- icy than previously expected. Policy-sensitive rates sug- gested that a 75 basis point increase in the target range for the federal funds rate was widely expected to be de- cided on at the Committee s September meeting, with some chance of a 100 basis point move. In addition, the market-implied path suggested reasonable odds of addi- tional 75 basis point and 50 basis point rate increases at the November and December meetings, respectively. Market participants generally anticipated a further slow- ing in the pace of rate increases after December, with the peak policy rate being reached in the first half of 2023. Beyond that period, the market-implied path of the fed- eral funds rate sloped downward, likely reflecting down- side risks to the policy rate path. The median respond- ent to the Open Market Desk surveys expected the pol- icy rate path to remain flat through 2023 after the peak rate was reached. On average, Desk survey respondents assigned an almost 30 percent probability to a decline in real gross domestic product (GDP) over 2022, nearly double the probability assigned in the July survey. The manager pro tem turned next to a discussion of pol- icy implementation. Balance sheet runoff had continued to proceed smoothly over the intermeeting period. With caps on redemptions of Treasury securities and agency mortgage-backed securities (MBS) doubling in Septem- ber, the pace of balance sheet runoff was set to increase over coming months. The markets for Treasury securi- ties and agency MBS continued to function in an orderly manner, though liquidity conditions in both markets re- mained low, reflecting elevated interest rate uncertainty. In money markets, the 75 basis point increase in the tar- get range at the July meeting passed through fully to overnight rates