Federal Reserve — FOMC Statement (USA, 2022)

Minutes of the Federal Open Market Committee June 14 15, 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, June 14, 2022, at 11:00 a.m. and continued on Wednesday, June 15, 2022, at 9:00 a.m.1 Attendance Jerome H. Powell, Chair John C. Williams, Vice Chair Michelle W. Bowman Lael Brainard James Bullard Lisa D. Cook Esther L. George Philip N. Jefferson Loretta J. Mester Christopher J. Waller Meredith Black, Charles L. Evans, Patrick Harker, Naureen Hassan, and Neel Kashkari, 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 Kenneth C. Montgomery, Interim President of the Federal Reserve Bank of Boston 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 Shaghil Ahmed, Brian M. Doyle, Carlos Garriga, Joseph W. Gruber, Ellis W. Tallman, and William Wascher, Associate Economists Lorie K. Logan, Manager, System Open Market Account Patricia Zobel, Deputy Manager, System Open Market Account Ann E. Misback, Secretary, Office of the Secretary, Board Matthew J. Eichner,2 Director, Division of Reserve Bank Operations and Payment Systems, Board; Michael S. Gibson, Director, Division of Supervision and Regulation, Board; Andreas Lehnert, Director, Division of Financial Stability, Board Daniel M. Covitz, Deputy Director, Division of Research and Statistics, Board; Sally Davies, Deputy Director, Division of International Finance, Board; Rochelle M. Edge, Deputy Director, Division of Monetary Affairs, Board; Michael T. Kiley, Deputy Director, Division of Financial Stability, Board Jon Faust and Joshua Gallin, Senior Special Advisers to the Chair, Division of Board Members, Board Burcu Duygan-Bump, Jane E. Ihrig, Kurt F. Lewis, Nitish R. Sinha, and Paul R. Wood, Special Advisers to the Board, Division of Board Members, Board Linda Robertson, Assistant to the Board, Division of Board Members, Board Marnie Gillis DeBoer3 and David L pez-Salido, Senior Associate Directors, Division of Monetary Affairs, Board; Diana Hancock and John J. Stevens, Senior Associate Directors, 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 Attended through the discussion of developments in finan- cial markets and open market operations. 3 Attended Tuesday s session only. Page 1_____________________________________________________________________________________________ Edward Nelson and Robert J. Tetlow,4 Senior Advisers, James P. Bergin, Marc Giannoni, Giovanni Olivei, Division of Monetary Affairs, Board Christopher J. Gust, Associate Director, Division of Monetary Affairs, Board Paolo A. Pesenti, and Robert G. Valletta, Senior Vice Presidents, Federal Reserve Banks of New York, Dallas, Boston, New York, and San Francisco, respectively Shane M. Sherlund, Deputy Associate Director, Division of Research and Statistics, Board Roc Armenter, Vice President, Federal Reserve Bank of Philadelphia Giovanni Favara and Etienne Gagnon,3 Assistant Directors, Division of Monetary Affairs, Board; Paul Lengermann and Byron Lutz, Assistant Directors, Division of Research and Statistics, Board Penelope A. Beattie,3 Section Chief, Office of the Secretary, Board; Valerie S. Hinojosa, Section Chief, Division of Monetary Affairs, Board Alyssa Arute,2 Manager, Division of Reserve Bank Operations and Payment Systems, Board Ayelen Banegas and Anna Orlik,3 Principal Economists, Division of Monetary Affairs, Board; Stephen F. Lin, Principal Economist, Division of Research and Statistics, Board Giovanni Nicol , Arsenios Skaperdas, and Hiroatsu Tanaka, Senior Economists, Division of Monetary Affairs, Board; Cisil Sarisoy, Senior Economist, Division of International Finance, Board Achilles Sangster II, Senior Information Manager, Division of Monetary Affairs, Board David Na, Senior Financial Institution and Policy Analyst, Division of Monetary Affairs, Board Jose Acosta, Senior Communications Analyst, Division of Information Technology, Board Kathleen O. Paese, First Vice President, Federal Reserve Bank of St. Louis David Altig, Kartik B. Athreya, Michelle M. Neal, and Anna Paulson, Executive Vice Presidents, Federal Reserve Banks of Atlanta, Richmond, New York, and Chicago, respectively 4 Attended from the discussion of the economic and financial situation through the end of Wednesday s session. Alisdair G. McKay, Senior Research Economist, Federal Reserve Bank of Minneapolis Developments in Financial Markets and Open Market Operations The manager of the System Open Market Account (SOMA) turned first to a discussion of financial devel- opments. Over the intermeeting period, there were sig- nificant swings in asset prices, and financial conditions tightened, on net, as market participants assessed incom- ing information about the economy. In the United States, near-term policy rate expectations shifted mark- edly toward the end of the period, particularly after the release of the May consumer price index (CPI) report. Ahead of the release of the report, market expectations reflected a broad consensus that there would be 50 basis point rate increases at both the June and July FOMC meetings. After the release of the higher-than-expected inflation data, policy-sensitive rates pointed instead to a considerable probability of 75 basis point moves at both the June and July meetings. The market-implied path of the federal funds rate moved higher at longer horizons as well. Market participants noted elevated uncertainty about the economic and monetary policy outlook. Across the yield curve, rates on nominal Treasury secu- rities ended the period significantly higher, primarily re- flecting the revision in the outlook for monetary policy and the associated rise in real yields. Market-based measures of inflation compensation continued to indi- cate expectations that inflation would decline notably in coming quarters, and measures of medium-term infla- tion compensation fell over the intermeeting period. Market participants reported that while liquidity condi- tions in the market for Treasury securities had been af- fected by the elevated volatility in rates and larger trades were having an increased effect on pricing, overall mar- ket functioning had held up. Responding to higher in- Page 2Federal Open Market Committee_____________________________________________________________________________________________ terest rates and some concerns about the growth out- look, equity prices moved substantially lower over the period. The manager turned next to a discussion of develop- ments related to foreign central banks. Most major for- eign central banks were proceeding on a path of remov- ing policy accommodation in order to address elevated levels of inflation. Several including those of Canada, Australia, and New Zealand had raised their policy rates 50 basis points over the intermeeting period, and some signaled the potential need for more forceful tight- ening in order to address inflation risks. The European Central Bank (ECB) announced an end to its asset pur- chase program and signaled an intention to lift policy rates in July. Meanwhile, the stance of monetary policy in Japan was generally expected to remain highly accom- modative, though recent upward pressure on Japanese government bond yields had led the Bank of Japan (BOJ) to step up its efforts to defend its yield curve con- trol target. On balance, market participants were fo- cused on the largely synchronous shift toward monetary policy tightening across most advanced economies. Regarding money market developments, the manager noted that the 50 basis point increase in the target range at the May FOMC meeting passed through to the effec- tive federal funds rate and was also transmitted to other overnight rates. The federal funds rate held steady at 83 basis points throughout the period, while the Secured Overnight Financing Rate softened, on net, falling to the bottom of the federal funds target range later in the pe- riod. Contacts attributed the downward pressure on se- cured rates to high liquidity levels and declining Treasury bill supply, as well as elevated uncertainty about the in- terest rate path, which had increased demand for short- term investments. In this environment, participation in the overnight reverse repurchase agreement (ON RRP) facility increased, and a greater share of activity in over- night private repurchase agreement (repo) markets was conducted by lenders who lacked access to the facility. The manager noted that, if ON RRP usage continued to rise, it may be appropriate at some point to consider fur- ther lifting the per-counterparty limit. Over the longer term, ON RRP usage was expected to fall, with the re- duction in the size of the Federal Reserve s balance sheet resulting in a gradual rise in money market rates relative to the ON RRP rate. The deputy manager turned next to a discussion of Fed- eral Reserve operations and related topics. In accord- ance with the directive to the Open Market Desk, the reduction in SOMA securities holdings began in June, und