Federal Reserve — FOMC Statement (USA, 2022)

Minutes of the Federal Open Market Committee May 3 4, 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, May 3, 2022, at 10:00 a.m. and continued on Wednesday, May 4, 2022, at 9:00 a.m.1 Attendance Jerome H. Powell, Chair John C. Williams, Vice Chair Michelle W. Bowman Lael Brainard James Bullard Esther L. George 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 Carlos Garriga, Joseph W. Gruber, Beverly Hirtle, David E. Lebow, Ellis W. Tallman, and William Wascher, Associate Economists Lorie K. Logan, Manager, System Open Market Account 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. 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 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 Antulio N. Bomfim, Burcu Duygan-Bump, Jane E. Ihrig, Kurt F. Lewis, and Nitish R. Sinha, Special Advisers to the Board, Division of Board Members, Board Linda Robertson, Assistant to the Board, Division of Board Members, Board William F. Bassett, Senior Associate Director, Division of Financial Stability, Board; John J. Stevens, Senior Associate Director, Division of Research and Statistics, Board; Min Wei, Senior Associate Director, Division of Monetary Affairs, Board; Paul R. Wood, Senior Associate Director, Division of International Finance, Board Edward Nelson and Annette Vissing-J rgensen, Senior Advisers, Division of Monetary Affairs, Board Andrew Figura, Glenn Follette, and Elizabeth K. Kiser, Associate Directors, Division of Research and 2 Attended through the discussion of developments in finan- cial markets and open market operations. _____________________________________________________________________________________________Page 1 Statistics, Board; Andrea Raffo, Associate Director, Division of International Finance, Board; Jeffrey D. Walker,2 Associate Director, Division of Reserve Bank Operations and Payment Systems, Board Norman J. Morin, Deputy Associate Director, Division of Research and Statistics, Board; Zeynep Senyuz, Deputy Associate Director, Division of Monetary Affairs, Board Etienne Gagnon and Andrew Meldrum, Assistant Directors, Division of Monetary Affairs, Board Penelope A. Beattie,3 Section Chief, Office of the Secretary, Board; Valerie S. Hinojosa, Section Chief, Division of Monetary Affairs, Board; Logan T. Lewis,4 Section Chief, Division of International Finance, Board Randall A. Williams, Group Manager, Division of Monetary Affairs, Board Isabel Cair , Michele Cavallo, and Manjola Tase, Principal Economists, Division of Monetary Affairs, Board Jose Acosta, Senior Communications Analyst, Division of Information Technology, Board David Altig, Kartik B. Athreya, Michael Dotsey, Michelle M. Neal, and Anna Paulson, Executive Vice Presidents, Federal Reserve Banks of Atlanta, Richmond, Philadelphia, New York, and Chicago, respectively Marc Giannoni, Giovanni Olivei, and Mark L.J. Wright, Senior Vice Presidents, Federal Reserve Banks of Dallas, Boston, and Minneapolis, respectively James P. Bergin, Nicolas Petrosky-Nadeau, and Matthew D. Raskin,2 Vice Presidents, Federal Reserve Banks of New York, San Francisco, and New York, respectively Developments in Financial Markets and Open Market Operations The manager turned first to a discussion of monetary policy expectations in the United States. Federal Re- serve communications since the March FOMC meeting were perceived as signaling a more rapid removal of pol- icy accommodation than had been expected, resulting in significant shifts in expectations regarding the path of the federal funds rate. For the current meeting, federal funds futures implied around 50 basis points of policy rate tightening, and Open Market Desk survey respond- ents assigned an average probability of 80 percent to that outcome. The median Desk survey respondents also projected 50-basis-point increases in the target range at the two following meetings and another 125 basis points of increases by the middle of next year, bringing the pro- jected midpoint of the target range to a peak of 3.13 per- cent substantially higher than in previous surveys. Market participants continued to note significant uncer- tainty regarding the economic outlook and the degree of policy tightening ahead. This uncertainty was reflected in the dispersion in survey respondents  average proba- bility distribution for the target range at the end of 2023. Regarding the outlook for runoff of the Federal Re- serve s securities holdings, market participants widely expected the Committee to announce the commence- ment of balance sheet runoff at the current meeting. Median survey responses suggested that most market participants anticipated maximum redemption caps of $60 billion per month for Treasury securities and $35 billion per month for agency mortgage-backed secu- rities (MBS), with the caps phased in over roughly three months. Survey responses continued to reflect substan- tial dispersion in views on the level of System Open Mar- ket Account (SOMA) holdings at which balance sheet runoff would end. The manager turned next to a discussion of U.S. finan- cial market developments. Financial conditions tight- ened notably over the period. Treasury yields increased across the curve, with the rise primarily reflecting higher real interest rates. Longer-term private borrowing rates also moved higher, with 30-year fixed-rate mortgage rates rising above 5 percent to the highest levels in over a decade. Equity indexes ended the period substantially lower, on net. These indexes moved up earlier in the period in connection with a perceived reduction in tail risks stemming from the war in Ukraine but then moved lower, reportedly because of increased caution regarding 3 Attended Tuesday s session only. 4 Attended the discussion of economic developments and out- look. Page 2Federal Open Market Committee_____________________________________________________________________________________________ the economic outlook amid the expected tightening in U.S. monetary policy. The dollar appreciated, leaving the broad trade-weighted dollar up around 2 percent over the period. Viewed over a longer time horizon, fi- nancial conditions, as measured by many financial con- ditions indexes, had tightened by historically large amounts since the beginning of the year. Market- and survey-based measures of U.S. inflation ex- pectations continued to project a significant deceleration in inflation in the coming years. Nonetheless, far-for- ward inflation compensation rose over the period, and market participants remained attentive to the risk that, in bringing inflation back to 2 percent, the Committee would need to tighten by more than currently expected. In global financial developments, many advanced-econ- omy central banks raised policy rates over the period, and investors increasingly came to anticipate tighter monetary policy ahead in most advanced foreign econo- mies. The Bank of Japan was an exception and was widely anticipated to maintain its accommodative poli- cies. The yen depreciated 9 percent against the dollar over the intermeeting period to its weakest level in over two decades. Emerging market (EM) currencies re- mained relatively resilient. Market participants focused on the spread of COVID-19 in China and the effect of zero-COVID policies, which had resulted in increasingly widespread lockdowns. The renminbi depreciated against the dollar around 4 percent over the intermeeting period. The manager turned next to a discussion of develop- ments in money markets. The effective federal funds rate rose 25 basis points following the increase in the target range at the March FOMC meeting and remained stable throughout the period. Secured overnight rates also rose by 25 basis points following the March meet- ing, though modest softness emerged in subsequent days. Market participants noted that ongoing uncer- tainty about the near-term path of Federal Reserve pol- icy had increased demand for very short-dated invest- ments. This demand, combined with declining Treasury bill supply, contributed to the downward pressure on se