Federal Reserve — FOMC Statement (USA, 2022)

Minutes of the Federal Open Market Committee July 26 27, 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, July 26, 2022, at 10:30 a.m. and continued on Wednesday, July 27, 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 Meredith Black, Charles L. Evans, Patrick Harker, Neel Kashkari, and Helen E. Mucciolo,2 Alternate Members of the Committee Patricia Zobel, Deputy Manager, System Open Market Account Ann E. Misback, Secretary, Office of the Secretary, Board Andreas Lehnert, Director, Division of Financial Stability, Board Jennifer J. Burns, Deputy Director, Division of Supervision and Regulation, Board; Sally Davies, Deputy Director, Division of International Finance, Board; Rochelle M. Edge, Deputy Director, Division of Monetary Affairs, 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, Laura Lipscomb, John W. Schindler, Nitish R. Sinha, Paul R. Wood, and Rebecca Zarutskie, Special Advisers to the Board, Division of Board Members, Board Thomas I. Barkin, Raphael W. Bostic, and Mary C. Linda Robertson, Assistant to the Board, Division of Daly, Presidents of the Federal Reserve Banks of Richmond, Atlanta, and San Francisco, respectively Board Members, Board James A. Clouse, 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, Joseph W. Gruber, David E. Lebow, Ellis W. Tallman, and William Wascher, Associate Economists Lorie K. Logan, Manager, System Open Market Account William F. Bassett, Senior Associate Director, Division of Financial Stability, Board Edward Nelson, Senior Adviser, Division of Monetary Affairs, Board; Jeremy B. Rudd, Senior Adviser, Division of Research and Statistics, Board Andrew Figura, Associate Director, Division of Research and Statistics, Board; Christopher J. Gust, Associate Director, Division of Monetary Affairs, Board; Jeffrey D. Walker,3 Associate Director, Division of Reserve Bank Operations and Payment Systems, 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 Elected as an Alternate by the Federal Reserve Bank of New York, effective July 15, 2022. 3 Attended through the discussion of developments in finan- cial markets and open market operations. _____________________________________________________________________________________________Page 1 Patrick E. McCabe and Norman J. Morin, Deputy Associate Directors, Division of Research and Statistics, Board James F. Dolmas, Economic Policy Advisor and Senior Economist, Federal Reserve Bank of Dallas Nina Boyarchenko, Department Head, Federal Reserve David Arseneau, Assistant Director, Division of Bank of New York Financial Stability, Board; Giovanni Favara and Etienne Gagnon, Assistant Directors, Division of Monetary Affairs, Board Penelope A. Beattie,4 Section Chief, Office of the Secretary, Board; Valerie S. Hinojosa, Section Chief, Division of Monetary Affairs, Board Alyssa Arute,3 Manager, Division of Reserve Bank Operations and Payment Systems, Board Sriya L. Anbil,5 Group Manager, Division of Monetary Affairs, Board Fabian Winkler, Principal Economist, Division of Monetary Affairs, Board Peter M. Garavuso, Senior Information Manager, Division of Monetary Affairs, Board David Na and Anthony Sarver, Senior Financial Institution and Policy Analysts, Division of Monetary Affairs, Board Brett Takacs, Senior Communications Analyst, Division of Information Technology, Board Becky C. Bareford, First Vice President, Federal Reserve Bank of Richmond Kartik B. Athreya, Michael Dotsey, and Michelle M. Neal, Executive Vice Presidents, Federal Reserve Banks of Richmond, Philadelphia, and New York, respectively James P. Bergin, Spencer Krane, and Giovanni Olivei, Senior Vice Presidents, Federal Reserve Banks of New York, Chicago, and Boston, respectively William D. Dupor, Vice President, Federal Reserve Bank of St. Louis Andrew Foerster, Senior Research Advisor, Federal Reserve Bank of San Francisco Jonathan Heathcote, Monetary Advisor, Federal Reserve Bank of Minneapolis Federico Mandelman, Research Economist and Advisor, Federal Reserve Bank of Atlanta Developments in Financial Markets and Open Market Operations The deputy manager turned first to a discussion of fi- nancial market developments. Financial markets over the intermeeting period reflected elevated uncertainty about the outlook. Most market participants appeared to view a moderation of inflation and slower, but still positive, economic growth ahead as the most likely sce- nario. However, investors appeared to be increasingly attentive to downside risks to the economy in light of the potential for shocks from abroad and the continued upside surprises to inflation. On net, financial conditions eased modestly over the pe- riod but remained substantially tighter than at the start of the year. Treasury yields fell, reflecting expectations of slower growth as well as a decline in inflation com- pensation. Respondents to the Open Market Desk s sur- veys of primary dealers and market participants marked down their growth forecasts for 2022 and 2023 and at- tached higher odds than in the June survey to the possi- bility that the U.S. economy could enter a recession in coming quarters. Market participants perceived falling commodity prices particularly for oil and the FOMC s commit- ment to bringing inflation down as pointing to lower in- flation ahead. Market-based measures of near-dated in- flation compensation declined and continued to suggest that inflation would ease in coming quarters. In the Desk surveys, respondents also expected inflation to de- cline substantially in 2023 but assigned meaningful prob- abilities to a wide range of potential outcomes, including scenarios involving continued elevated rates of inflation. Far-forward market-based measures of inflation com- 4 Attended Tuesday s session only. 5 Attended from the discussion of the economic and financial situation through the end of Wednesday s session. Page 2Federal Open Market Committee_____________________________________________________________________________________________ pensation fell over the period. These measures contin- ued to suggest that inflation would return over time to the Committee s 2 percent objective. In their assessment of the policy outlook, market partic- ipants expected significant policy tightening in coming meetings as the Committee continued to respond to the current elevated level of inflation. Nearly all respond- ents to the Desk survey anticipated a 75 basis point in- crease in the target range at the current meeting, and most expected a 50 basis point increase in September to follow. The market-implied path of the federal funds rate indicated a peak policy rate of around 3.4 percent, significantly lower than at the time of the June meeting. The market-implied path suggested expectations that the policy rate would fall thereafter. Most respondents to the Desk survey expected the federal funds rate to re- main above the survey s longer-run policy rate of 2.4 percent through the end of 2024, but, on average, re- spondents placed significant probabilities on lower rate outcomes. Regarding developments abroad, central banks in ad- vanced foreign economies (AFEs) had quickened the pace of policy tightening in order to address above-tar- get inflation. Eight advanced-economy central banks raised their policy rates over the period. Along lines sim- ilar to U.S. developments, market-implied policy rates in most AFEs fell at longer horizons and reflected expec- tations that policy rates would reach peak levels by early 2023. In contrast to central banks in other advanced economies, the Bank of Japan confirmed its commit- ment to accommodative policy. In this environment, the exchange value of the dollar appreciated further, surpas- sing its March 2020 peak against advanced-economy currencies. The deputy manager next turned to a discussion of money markets and Desk operations. The 75 basis point increase in the target range at the June meeting passed through fully to the federal funds rate and other over- night rates. Although downward pressure on overnight secured rates had persisted, the pronounced softness ob- served in the past intermeeting period had abated to some degree. The overnight reverse repurchase agree- ment (ON RRP) facility continued to support policy im- plementation, and balances remained elevated. The dep- uty manager anticipated that, in the near term, the evo- lution of take-up at the ON RRP facility would continue to depend on changes in the supply of safe, short-term investments, and the demand for such investments by money market mutual funds (MMMFs). ON RRP bal- ances were expected to decline over time as balance sheet runoff proceeded. The deputy manager noted that this process would involve adjustments across a number of markets and th