On December 14th 2022, the Federal Open Market Committee released the meeting minuted from their latest monetary policy meeting. In this article, we highlight the key points from the meeting and discuss what this could mean for markets.
Overview
At its latest monetary policy meeting, the Federal Open Market Committee (FOMC) addressed the issue of rising inflation and discussed the steps it will take to tackle it. Inflation has been elevated due to a variety of factors, including supply and demand imbalances related to the pandemic, higher food and energy prices, broader price pressures, and the ongoing conflict in Ukraine. From higher interest rates to a reduction in treasury holdings, this article delves deeper into the details of the FOMC's monetary policy decisions and their implications for the economy.
Key Findings
According to recent indicators, there has been modest growth in spending and production in the economy. Job gains have been robust in recent months, and the unemployment rate has remained low. While this is good news, there are also some concerning factors at play. Inflation remains elevated, and there are several reasons for this. The pandemic has caused supply and demand imbalances in various industries, leading to price pressures. Additionally, food and energy prices have increased, contributing to the overall rise in inflation.
One major factor that is weighing on global economic activity is the ongoing conflict between Russia and Ukraine. This war is causing tremendous human and economic hardship, and it is contributing to upward pressure on inflation. The Federal Reserve Committee is highly attentive to inflation risks and is taking steps to address them.
To achieve its goals of maximum employment and an inflation rate of 2 percent over the longer run, the Committee has decided to raise the target range for the federal funds rate to 4-1/4 to 4-1/2 percent. The Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time. In determining the pace of future increases, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.
In addition to raising the target range for the federal funds rate, the Committee will continue to reduce its holdings of Treasury securities and agency debt and agency mortgage
Summary
The Federal Reserve Committee has raised the target range for the federal funds rate to 4-1/4 to 4-1/2 percent in an effort to achieve its goals of maximum employment and an inflation rate of 2 percent. While recent indicators show modest growth in spending and production, and job gains have been robust, inflation remains elevated due to various factors including the pandemic, higher food and energy prices, and the conflict between Russia and Ukraine. The Committee will continue to monitor incoming information and be prepared to adjust monetary policy as needed in order to achieve its goals. The Committee will also continue to reduce its holdings of Treasury securities and agency debt and mortgage-backed securities.
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