FEDERAL OPEN MARKET COMMITTEE (FOMC) MEETING RESULTS:

DATE: May 3 – 4, 2022 

1. 1The Fed increased its Target Fed Funds rate by 1/2%. The new range is 0.75% – 1.00%
2. 2The FOMC also announced a phased-in security run-off program of its balance sheet.
3. 3The rate hike and balance sheet reduction together represent the most aggressive tightening of monetary policy in years.
4. 4The 1/2% increase in the Fed Funds rate is very unusual. The Fed normally raises rate in 1/4%increments. The last time the Fed increased the rate by that much was 20+ years ago.
5. 5The Federal Open Market Committee’s decision was approved unanimously.
6. 6Finally in a statement that led many observers to think that this is just the beginning of that tightening episode, the FOMC exclaimed, “anticipates that ongoing increases in the target range will be appropriate.”

ECONOMIC HIGHLIGHTS: Job growth was strong, but economic activity edged downward,and inflation remains elevated!

• “Although overall economic edged down in the first quarter, household spending and business fixed investment remained strong. Job gains have been robust in recent months, and the unemployment rate has declined substantially.
• Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures.
• The invasion of Ukraine by Russia is causing human and economic hardship. The implications of the U.S. economy are highly uncertain. The invasion and related events are likely to weigh on economic activity.
• In addition, COVID-related lockdowns in China are likely to exacerbate supply chain disruptions. The Committee is highly attentive to inflation risks.”

ANNOUNCEMENTS: Fed funds rate increased. Fed funds range raised by a 1/2% – 0.75% -1.00%. Fed will begin to shrink it $9 trillion security portfolio.

• “The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. With appropriate firming in the stance of monetary policy, the Committee expects inflation to return to its 2 percent objective and the labor market to remain strong.
• support of these goals, the Committee decided to raise the target range for the federal funds rate to 3/4 to 1 percent and anticipates that ongoing increases in the target range will be appropriate.
• In addition, the Committee decided to begin reducing its holdings of Treasury securities and agency debt, and agency mortgage-backed securities on June 1st. The Fed will permit $30 billion in Treasuries and $17.5 billion in mortgage bonds to roll off every month in June, July, and August. Beginning in September, they will allow $60 billion in treasuries and $35 billion in mortgage securities to run off monthly.
• In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals.
• The Committee’s assessments will consider a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments.
• The Board of Governors of the Federal Reserve System voted unanimously to raise the interest rate paid on reserve balances to 0.9 percent, effective May 5, 2022.”

VOTING RESULTS: No dissenting votes

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; James Bullard; Esther L. George; Patrick Harker; Loretta J. Mester; and Christopher J. Waller. Patrick Harker voted as an alternate member at this meeting.

NEXT MEETING: June 14 – 15, 2022

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ABOUT THE AUTHOR

Dr. Edmond J. Seifried, PhD 

Dr. Seifried is Professor Emeritus of Economics and Business at Lafayette College in Easton, Pennsylvania and Executive Consultant for the Sheshunoff CEO Affiliation Programs. 

Dr. Seifried serves as the dean of the Virginia and West Virginia Banking Schools and has served on the faculty of numerous banking schools including: Stonier Graduate School of Banking, and the Graduate School of Banking of the South.