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Page 1

Minutes of the Federal Open Market Committee

May 3–4, 2022

A joint meeting of the Federal Open Market Committee Patricia Zobel, Deputy Manager, System Open Market
and the Board of Governors of the Federal Reserve Sys- Account
tem was held in the offices of the Board of Governors
on Tuesday, May 3, 2022, at 10:00 a.m. and continued Ann E. Misback, Secretary, Office of the Secretary,
on Wednesday, May 4, 2022, at 9:00 a.m. 1 Board

Attendance Matthew J. Eichner, 2 Director, Division of Reserve

Jerome H. Powell, Chair Bank Operations and Payment Systems, Board;
John C. Williams, Vice Chair Michael S. Gibson, Director, Division of
Michelle W. Bowman Supervision and Regulation, Board; Andreas
Lael Brainard Lehnert, Director, Division of Financial Stability,
James Bullard Board
Esther L. George
Loretta J. Mester Sally Davies, Deputy Director, Division of
Christopher J. Waller International Finance, Board; Rochelle M. Edge,
Deputy Director, Division of Monetary Affairs,
Meredith Black, Charles L. Evans, Patrick Harker, Board; Michael T. Kiley, Deputy Director, Division
Naureen Hassan, and Neel Kashkari, Alternate of Financial Stability, Board
Members of the Committee
Jon Faust and Joshua Gallin, Senior Special Advisers to
Thomas I. Barkin, Raphael W. Bostic, and Mary C. the Chair, Division of Board Members, Board
Daly, Presidents of the Federal Reserve Banks of
Richmond, Atlanta, and San Francisco, respectively Antulio N. Bomfim, Burcu Duygan-Bump, Jane E.
Ihrig, Kurt F. Lewis, and Nitish R. Sinha, Special
Kenneth C. Montgomery, Interim President of the Advisers to the Board, Division of Board
Federal Reserve Bank of Boston Members, Board

James A. Clouse, Secretary Linda Robertson, Assistant to the Board, Division of

Matthew M. Luecke, Deputy Secretary Board Members, Board
Brian J. Bonis, Assistant Secretary
Michelle A. Smith, Assistant Secretary William F. Bassett, Senior Associate Director, Division
Mark E. Van Der Weide, General Counsel of Financial Stability, Board; John J. Stevens,
Trevor A. Reeve, Economist Senior Associate Director, Division of Research
Stacey Tevlin, Economist and Statistics, Board; Min Wei, Senior Associate
Beth Anne Wilson, Economist Director, Division of Monetary Affairs, Board;
Paul R. Wood, Senior Associate Director, Division
Carlos Garriga, Joseph W. Gruber, Beverly Hirtle, of International Finance, Board
David E. Lebow, Ellis W. Tallman, and William
Wascher, Associate Economists Edward Nelson and Annette Vissing-Jørgensen, Senior
Advisers, Division of Monetary Affairs, Board
Lorie K. Logan, Manager, System Open Market
Account Andrew Figura, Glenn Follette, and Elizabeth K. Kiser,
Associate Directors, Division of Research and

1 The Federal Open Market Committee is referenced as the 2 Attended through the discussion of developments in finan-

“FOMC” and the “Committee” in these minutes; the Board cial markets and open market operations.
of Governors of the Federal Reserve System is referenced as
the “Board” in these minutes.
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Page 2 Federal Open Market Committee

Statistics, Board; Andrea Raffo, Associate Director, Developments in Financial Markets and Open
Division of International Finance, Board; Jeffrey Market Operations
D. Walker,2 Associate Director, Division of The manager turned first to a discussion of monetary
Reserve Bank Operations and Payment Systems, policy expectations in the United States. Federal Re-
Board serve communications since the March FOMC meeting
were perceived as signaling a more rapid removal of pol-
Norman J. Morin, Deputy Associate Director, Division icy accommodation than had been expected, resulting in
of Research and Statistics, Board; Zeynep Senyuz, significant shifts in expectations regarding the path of
Deputy Associate Director, Division of Monetary the federal funds rate. For the current meeting, federal
Affairs, Board funds futures implied around 50 basis points of policy
rate tightening, and Open Market Desk survey respond-
Etienne Gagnon and Andrew Meldrum, Assistant ents assigned an average probability of 80 percent to that
Directors, Division of Monetary Affairs, Board outcome. The median Desk survey respondents also
projected 50-basis-point increases in the target range at
Penelope A. Beattie, 3 Section Chief, Office of the the two following meetings and another 125 basis points
Secretary, Board; Valerie S. Hinojosa, Section of increases by the middle of next year, bringing the pro-
Chief, Division of Monetary Affairs, Board; Logan jected midpoint of the target range to a peak of 3.13 per-
T. Lewis, 4 Section Chief, Division of International cent—substantially higher than in previous surveys.
Finance, Board Market participants continued to note significant uncer-
tainty regarding the economic outlook and the degree of
Randall A. Williams, Group Manager, Division of policy tightening ahead. This uncertainty was reflected
Monetary Affairs, Board in the dispersion in survey respondents’ average proba-
bility distribution for the target range at the end of 2023.
Isabel Cairó, Michele Cavallo, and Manjola Tase,
Regarding the outlook for runoff of the Federal Re-
Principal Economists, Division of Monetary
serve’s securities holdings, market participants widely
Affairs, Board
expected the Committee to announce the commence-
ment of balance sheet runoff at the current meeting.
Jose Acosta, Senior Communications Analyst, Division
Median survey responses suggested that most market
of Information Technology, Board
participants anticipated maximum redemption caps of
$60 billion per month for Treasury securities and
David Altig, Kartik B. Athreya, Michael Dotsey,
$35 billion per month for agency mortgage-backed secu-
Michelle M. Neal, and Anna Paulson, Executive
rities (MBS), with the caps phased in over roughly three
Vice Presidents, Federal Reserve Banks of Atlanta,
months. Survey responses continued to reflect substan-
Richmond, Philadelphia, New York, and Chicago,
tial dispersion in views on the level of System Open Mar-
respectively
ket Account (SOMA) holdings at which balance sheet
runoff would end.
Marc Giannoni, Giovanni Olivei, and Mark L.J. Wright,
Senior Vice Presidents, Federal Reserve Banks of The manager turned next to a discussion of U.S. finan-
Dallas, Boston, and Minneapolis, respectively cial market developments. Financial conditions tight-
ened notably over the period. Treasury yields increased
James P. Bergin, Nicolas Petrosky-Nadeau, and across the curve, with the rise primarily reflecting higher
Matthew D. Raskin,2 Vice Presidents, Federal real interest rates. Longer-term private borrowing rates
Reserve Banks of New York, San Francisco, and also moved higher, with 30-year fixed-rate mortgage
New York, respectively 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.
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Minutes of the Meeting of May 3–4, 2022 Page 3

the economic outlook amid the expected tightening in Desk would issue a statement and FAQs providing the
U.S. monetary policy. The dollar appreciated, leaving public with details regarding the implementation of the
the broad trade-weighted dollar up around 2 percent plan. The Desk would closely monitor market condi-
over the period. Viewed over a longer time horizon, fi- tions and update the Committee during the runoff pro-
nancial conditions, as measured by many financial con- cess.
ditions indexes, had tightened by historically large
The deputy SOMA manager reviewed developments
amounts since the beginning of the year.
concerning Desk operations. The Desk planned to in-
Market- and survey-based measures of U.S. inflation ex- crease the publication frequency of data on ON RRP us-
pectations continued to project a significant deceleration age. This additional information would provide the pub-
in inflation in the coming years. Nonetheless, far-for- lic with greater transparency about usage of the ON RRP
ward inflation compensation rose over the period, and facility. The Desk planned to publish the SOMA annual
market participants remained attentive to the risk that, report soon. In addition to the detailed review of open
in bringing inflation back to 2 percent, the Committee market operations over 2021, the report would include
would need to tighten by more than currently expected. updated illustrative projections of the size and composi-
tion of the Federal Reserve’s balance sheet over coming
In global financial developments, many advanced-econ-
years. With respect to other operational matters, the
omy central banks raised policy rates over the period,
Desk continued to work on details of plans for agency
and investors increasingly came to anticipate tighter
MBS CUSIP (Committee on Uniform Security Identifi-
monetary policy ahead in most advanced foreign econo-
cation Procedures) aggregation and anticipated that this
mies. The Bank of Japan was an exception and was
process would begin in coming months. Finally, the
widely anticipated to maintain its accommodative poli-
deputy manager requested that the Committee vote to
cies. The yen depreciated 9 percent against the dollar
maintain the standing U.S. dollar and foreign currency
over the intermeeting period to its weakest level in over
liquidity swap arrangements and to renew the reciprocal
two decades. Emerging market (EM) currencies re-
currency arrangements with Canada and Mexico under
mained relatively resilient. Market participants focused
the North American Framework Agreement. In their
on the spread of COVID-19 in China and the effect of
discussion, participants widely agreed that the standing
zero-COVID policies, which had resulted in increasingly
swap lines are a critical tool allowing the Federal Reserve
widespread lockdowns. The renminbi depreciated
to address global dollar funding pressures that could
against the dollar around 4 percent over the intermeeting
otherwise adversely affect the U.S. economy.
period.
The Committee voted unanimously to renew the recip-
The manager turned next to a discussion of develop-
rocal currency arrangements with the Bank of Canada
ments in money markets. The effective federal funds
and the Bank of Mexico; these arrangements are associ-
rate rose 25 basis points following the increase in the
ated with the Federal Reserve’s participation in the
target range at the March FOMC meeting and remained
North American Framework Agreement of 1994. In ad-
stable throughout the period. Secured overnight rates
dition, the Committee voted unanimously to renew the
also rose by 25 basis points following the March meet-
dollar and foreign currency liquidity swap arrangements
ing, though modest softness emerged in subsequent
with the Bank of Canada, the Bank of England, the Bank
days. Market participants noted that ongoing uncer-
of Japan, the European Central Bank, and the Swiss Na-
tainty about the near-term path of Federal Reserve pol-
tional Bank. The votes to renew the Federal Reserve’s
icy had increased demand for very short-dated invest-
participation in these standing arrangements occur an-
ments. This demand, combined with declining Treasury
nually at the April or May FOMC meeting.
bill supply, contributed to the downward pressure on se-
cured rates and to rising overnight reverse repurchase By unanimous vote, the Committee ratified the Desk’s
agreement (ON RRP) usage. The manager expected domestic transactions over the intermeeting period.
that ON RRP usage could remain elevated in coming There were no intervention operations in foreign curren-
months but anticipated that, over the longer term, usage cies for the System’s account during the intermeeting pe-
would decline as balance sheet reduction proceeded. riod.
The manager indicated that the Desk was prepared to Staff Review of the Economic Situation
implement the Committee’s plan for balance sheet re- The information available at the time of the May 3–4
duction and that, in the event that the Committee an- meeting suggested that U.S. real gross domestic product
nounced the plan at the end of the current meeting, the
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Page 4 Federal Open Market Committee

(GDP) declined in the first quarter. However, first-quar- goods, capital goods, and automotive products. By con-
ter growth in private domestic final demand was faster trast, real exports of goods fell back after rising briskly
than in the previous quarter, while labor market condi- late last year, with broad-based declines in most major
tions tightened further in March. Consumer price infla- categories. Both real exports and imports of services
tion through March—as measured by the 12-month per- grew at a moderate pace in the first quarter, though both
centage change in the price index for personal consump- were held back by a tepid recovery in international travel
tion expenditures (PCE)—remained elevated. amid ongoing waves of COVID-19.
Total nonfarm payroll employment rose in March, and Data suggested that foreign economic growth remained
the unemployment rate declined to 3.6 percent. The un- solid in the first quarter, as most economies continued
employment rates for African Americans and for His- to show adaptability to new COVID-19 waves. Chinese
panics moved lower, though both rates remained notice- data for March and April, however, showed declines in
ably higher than the national average. The labor force manufacturing and services activity and worsening sup-
participation rate increased in March, as did the employ- ply bottlenecks after Chinese authorities locked down
ment-to-population ratio. The private-sector job open- Shanghai and other cities to combat the spread of the
ings rate, as measured by the Job Openings and Labor Omicron variant. The ongoing Russian invasion of
Turnover Survey, remained elevated. The employment Ukraine also left its imprint on foreign economies, with
cost index of hourly compensation in the private sector consumer and business sentiment declining in Europe
rose 4.8 percent over the 12 months ending in March; and global prices of a range of commodities continuing
this gain was much larger than the corresponding to rise. Foreign inflation increased significantly further,
12-month changes posted in each of the preceding four driven by surging energy and food prices as well as some
years and was the largest 12-month increase since 1990. broadening of price pressures to core goods and ser-
vices. In response, many central banks around the world
Consumer prices continued to rise rapidly. Total PCE
tightened their monetary policy stances.
price inflation was 6.6 percent over the 12 months end-
ing in March, and core PCE price inflation, which ex- Staff Review of the Financial Situation
cludes changes in consumer energy prices and many U.S. Treasury yields and the market-implied federal
consumer food prices, was 5.2 percent over the same pe- funds rate path moved substantially higher over the in-
riod. The trimmed mean measure of 12-month PCE termeeting period as Federal Reserve communications
price inflation constructed by the Federal Reserve Bank and domestic economic data releases were perceived as
of Dallas was 3.7 percent in March, 2 percentage points suggesting that a more aggressive tightening of monetary
higher than its year-earlier rate of increase. A new ver- policy was likely over coming months. Sovereign yields
sion of the staff’s common inflation expectations index, in advanced foreign economies (AFEs) also increased
which combines information from many indicators of notably. Broad domestic equity price indexes declined
inflation expectations and inflation compensation, on net, and the one-month option-implied volatility on
moved up in the first quarter and was at the upper end the S&P 500 index—the VIX—remained elevated.
of the range of values seen since 2005. Short-term funding markets were stable, while participa-
tion in the ON RRP facility increased further. Amid the
Both real PCE and residential investment increased in
increase in Treasury yields, borrowing costs increased in
the first quarter at rates similar to those seen in the
many sectors and were at or somewhat above pre-pan-
fourth quarter of 2021. Business fixed investment
demic levels.
growth picked up sharply in the first quarter, with spend-
ing on equipment and intellectual property products Since the March FOMC meeting, 2-, 5-, and 10-year
posting a large increase. Inventory investment moved Treasury yields increased significantly on net. The in-
lower after surging in the fourth quarter of 2021, and creases in nominal Treasury yields were primarily ac-
total real government purchases declined further, led by counted for by rising real yields, while inflation compen-
a drop in defense purchases. sation implied by Treasury Inflation-Protected Securities
was little changed. Alongside moves in shorter-term
The U.S. international trade deficit widened further in
Treasury yields, the expected federal funds rate path—
the first quarter of this year, and net exports made a large
implied by a straight read of overnight index swap
negative contribution to real U.S. GDP growth. Goods
quotes—rose notably since the March FOMC meeting.
imports continued the fourth quarter’s strong growth,
driven by large increases in real imports of consumer
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Minutes of the Meeting of May 3–4, 2022 Page 5

Broad equity indexes decreased over the intermeeting appreciation against AFE currencies, as U.S. Treasury
period. Early in the period, equity prices increased, sup- yields generally rose more than their AFE counterparts.
ported by the robust pace of economic activity and re- Among EM currencies, the dollar appreciated signifi-
duced market concerns about the implications for the cantly against the Chinese renminbi.
global economy of Russia’s invasion of Ukraine. The
Over the intermeeting period, along with the increase in
initial sharp gains in stock prices were followed by larger
Treasury yields, borrowing costs increased in many sec-
declines later in the period, as longer-term interest rates
tors and were at or somewhat above pre-pandemic lev-
rose substantially and as some disappointing earnings re-
els. Credit remained widely available, and borrower
ports toward the end of the intermeeting period weighed
credit quality continued to be strong overall.
on equity prices. The VIX declined substantially early in
the period but ended the period little changed on net, Borrowing costs for residential mortgage loans increased
remaining at elevated levels. Similarly, spreads on invest- substantially, with the 30-year mortgage offer rates
ment- and speculative-grade corporate bonds narrowed reaching levels not seen since 2010. This increase largely
moderately earlier in the intermeeting period and then reflected the rise in the 10-year Treasury yield. Corpo-
widened, ending the period only slightly narrower, on rate bond yields also increased, although the effect of the
net, and below the median of their historical distribution. increase in Treasury yields was partly offset by narrower
Spreads on municipal bonds were up modestly and spreads. Municipal bond yields also increased notably.
stood at about the 90th percentile of their historical dis-
Bank loan rates for commercial borrowers increased and
tribution.
rates on large syndicated loans were roughly in line with
Conditions in short-term funding markets remained sta- pre-pandemic levels. In consumer credit markets, rates
ble over the intermeeting period, with the March in- on auto loans and new credit card offers continued to
crease in the Federal Reserve’s administered rates pass- trend upward.
ing through to overnight money market rates. Secured
Credit, which remained widely available for most types
overnight rates softened later in the period, with down-
of borrowers, was broadly in line with pre-pandemic lev-
ward pressure on rates attributed to continuing declines
els. Gross nonfinancial corporate bond issuance re-
in net Treasury bill issuance, increased activity in certain
bounded sharply in March, mostly reflecting an increase
segments of the repo market that tend to trade at lower
in investment-grade issuance, while gross institutional
rates, and money market funds continuing to shorten
leveraged loan issuance slowed amid elevated geopoliti-
portfolio maturities amid uncertainty about the pace of
cal uncertainty.
anticipated policy rate increases. Consistent with the
downward pressure on repo rates, daily take-up in the Commercial and industrial (C&I) loans and commercial
ON RRP facility remained elevated. real estate (CRE) loans on bank balance sheets also grew
robustly in March. Respondents in the April Senior
Spreads on most types of longer-tenor commercial pa-
Loan Officer Opinion Survey on Bank Lending Prac-
per and negotiable certificates of deposit narrowed, re-
tices (SLOOS) reported a continued easing of lending
portedly reflecting reduced market concerns about the
terms and strengthening demand for C&I loans as well
effects of Russia’s invasion of Ukraine, although some
as easing standards for multifamily CRE loans.
of the spreads remained slightly wider than those seen
earlier this year. For most small businesses, credit appeared to be availa-
ble, although these businesses’ demand for credit report-
Over the intermeeting period, sovereign yields in AFEs
edly remained weak. In the April SLOOS, large banks
increased notably because of concerns about further in-
reported unchanged standards on C&I loans to small
flationary pressures, some central bank communications
firms, while small banks tightened standards modestly to
that were perceived as less accommodative than ex-
such firms.
pected, and spillovers from rises in U.S. Treasury yields.
Prospects of tighter monetary policy and COVID-re- In consumer credit markets, credit card balances grew
lated lockdowns in China weighed on prices of risky as- strongly in the first quarter amid easing standards and
sets, but investor concerns surrounding the economic greater utilization, and auto credit outstanding continued
effects of the war in Ukraine seemed to abate partially. to grow steadily through February despite vehicle pro-
On balance, major foreign equity indexes registered duction shortfalls and low vehicle inventories. Residen-
mixed and relatively modest changes. The U.S. dollar tial mortgage credit conditions remained accommoda-
generally strengthened, with a more pronounced dollar
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Page 6 Federal Open Market Committee

tive through March, despite the increase in mortgage in- leverage at key nonbank financial institutions (NBFIs)
terest rates, particularly for stronger borrowers who met was elevated and that bank lending to NBFIs continued
standard loan criteria. to increase notably. Relatedly, NBFIs’ reliance on bank
credit lines to meet unexpected liquidity needs could
The credit quality of firms, municipalities, and house-
generate moderate liquidity pressures at large banks dur-
holds remained strong overall. The volume of credit rat-
ing times of financial stress. With regard to funding risk,
ing upgrades for corporate bonds outpaced downgrades
the staff highlighted structural vulnerabilities in some
moderately in March, continuing a nearly yearlong pat-
types of mutual funds as a continuing focus.
tern. The credit quality of C&I loans on banks’ books
continued to be strong as delinquency and default rates Staff Economic Outlook
both remained low. Delinquency rates on bank and The projection for U.S. economic activity prepared by
nonbank loans to small businesses edged down in Feb- the staff for the May FOMC meeting implied a trajectory
ruary, while in the CRE sector, borrower financial health for real GDP that was broadly similar to the March pro-
continued to recover. Household credit quality re- jection. The staff noted that the first-quarter decline in
mained strong, and delinquency rates across both prime real GDP was driven by categories of spending that had
and nonprime borrowers continued to be subdued by often been volatile in the past, and they viewed the con-
historical standards. tinued strength in private domestic final demand, the la-
bor market, and industrial production as providing a
The staff provided an update on its assessment of the
more accurate picture of the economy’s direction in the
stability of the financial system. The staff judged that,
first quarter. The staff therefore anticipated that GDP
amid a substantial upward shift in interest rates, Russia’s
growth would rebound in the second quarter and ad-
invasion of Ukraine, and ongoing disruptions to supply
vance at a solid pace over the remainder of the year.
chains, the financial system—outside of commodities
GDP growth was then expected to slow in 2023 and
markets—had been resilient. However, larger or pro-
2024 as monetary policy became less accommodative
longed disruptions in commodities markets could inter-
and financial conditions tightened further; by 2024, real
fere with other markets and real activity more broadly.
GDP growth was expected to be in line with potential
To date, however, such potential spillovers appeared to
output growth. However, the level of real GDP was ex-
be limited.
pected to remain well above potential over the projec-
The staff noted that increased uncertainty and ongoing tion period, and labor market conditions were expected
volatility had reduced risk appetite in financial markets to remain very tight.
and eased price pressures, although valuations of many
The staff’s projection for PCE price inflation was re-
assets remained elevated. CRE valuations appeared
vised up slightly in the second half of 2022 and in 2023
somewhat elevated except for sectors that were affected
in response to the slow resolution of supply constraints
most by the pandemic. Residential house prices had
seen over the first part of 2022, a higher projected path
risen rapidly, although the staff continued to see key dif-
for import prices, and a judgment that wage increases
ferences from the previous debt-fueled housing boom:
would put more upward pressure on services prices than
The mortgage finance reforms enacted after 2008 lim-
previously assumed. All told, total PCE price inflation
ited the potential for significant deterioration in under-
was expected to be 4.3 percent in 2022. PCE price in-
writing standards, most new mortgage debt had been
flation was then expected to step down to 2.5 percent in
added by borrowers with prime credit scores, and home-
2023 and to 2.1 percent in 2024 as supply–demand im-
owners’ equity positions were healthy.
balances in the economy were reduced by slowing aggre-
The staff assessed that aggregate household and business gate demand and an anticipated easing of supply con-
leverage was moderate. Households’ debt-to-GDP ratio straints.
remained relatively low, and there were few signs of in-
The staff continued to judge that the risks to the baseline
creased stress among lower-income households. Busi-
projection for real activity were skewed to the downside
ness debt remained elevated relative to its pre-pandemic
and that the risks to the inflation projection were skewed
history, but interest coverage ratios were high.
to the upside. The war in Ukraine was seen as a possible
The staff assessed that vulnerabilities arising from finan- source of even greater upward pressure on energy and
cial leverage remained moderate on balance. Despite commodity prices, while the war and adverse develop-
market volatility, the banking sector continued to be well ments associated with rising COVID infections in China
capitalized with strong liquidity. The staff noted that were both perceived as increasing the risk that supply
_____________________________________________________________________________________________
Minutes of the Meeting of May 3–4, 2022 Page 7

chain disruptions and production constraints would be timing and magnitude of these effects were uncertain.
further exacerbated in the United States and abroad. Participants recognized the need to adjust the stance of
policy depending on how these and other factors played
Participants’ Views on Current Conditions and the
out over time.
Economic Outlook
In their discussion of current economic conditions, par- In their discussion of the household sector, participants
ticipants noted that, although overall economic activity indicated that they expected robust growth in consump-
had edged down in the first quarter, household spending tion spending. They pointed to several elements sup-
and business fixed investment had remained strong. Job porting this outlook, including strong household balance
gains had been robust in recent months, and the unem- sheets, wide availability of jobs, and the U.S. economy’s
ployment rate had declined substantially. Inflation re- resilience in the face of new waves of the virus. The
mained elevated, reflecting continued supply and de- considerable increases in Treasury yields across maturi-
mand imbalances, higher energy prices, and broader ties over the intermeeting period were associated with
price pressures. Participants recognized that the inva- rising interest rates faced by households, particularly
sion of Ukraine by Russia was causing tremendous hu- rates on home mortgages. A couple of participants re-
man and economic hardship for the Ukrainian people. ported that their business contacts continued to see ro-
Participants judged that the implications for the U.S. bust housing demand and elevated home prices despite
economy were highly uncertain. The invasion and re- higher mortgage interest rates.
lated events were creating additional upward pressure on
With respect to the business sector, participants cited ro-
inflation and were likely to weigh on economic activity.
bust consumer demand, healthy household balance
In addition, participants judged that COVID-related
sheets, and inventory rebuilding as factors supportive of
lockdowns in China were likely to exacerbate supply
business activity and investment. The ability of firms to
chain disruptions. Against this background, participants
meet demand continued to be limited by labor shortages
stated that they were highly attentive to inflation risks.
and supply chain bottlenecks. Although some partici-
Participants commented that after its rapid growth in the pants noted that their business contacts had reported an
last quarter of 2021, real GDP had declined in the first easing of supply constraints, participants assessed that
quarter of this year, with net exports and inventory in- supply constraints overall were still significant and
vestment making large negative contributions to growth. would likely take some time to be resolved. In addition,
They noted, however, that these volatile components the invasion of Ukraine by Russia and COVID-related
tended to contain little signal about subsequent growth lockdowns in China were seen as likely to exacerbate
and that household spending and business fixed invest- supply chain disruptions. A few participants indicated
ment had remained strong in the first quarter. These that some of their business contacts were reportedly hes-
advances and the further tightening of labor market con- itant to expand capacity or had postponed construction
ditions were judged consistent with significant underly- projects.
ing momentum in the domestic economy. In line with
Participants commented that demand for labor contin-
this judgment, participants expected that real GDP
ued to outstrip available supply across many parts of the
would grow solidly in the current quarter. In their dis-
economy and that their business contacts continued to
cussion of the economic outlook beyond the near term,
report difficulties in hiring and retaining workers. They
participants indicated that they expected that output
observed that various indicators pointed to a very tight
would expand more moderately this year than in 2021,
labor market. Employment growth had continued at a
with growth this year likely near or above its longer-run
strong pace, the unemployment rate had fallen to a near-
rate, and that the imbalance between aggregate demand
50-year low, quits and job openings had remained ex-
and aggregate supply would diminish over time. Partic-
tremely elevated, and nominal wages had continued to
ipants saw an appropriate firming of monetary policy as
rise rapidly. A few participants noted that there were
playing a central role in addressing this imbalance and in
signs that the pandemic-related factors that had held
supporting the Federal Reserve’s goals of maximum em-
back labor supply might be abating further, especially in
ployment and price stability. An easing of supply bottle-
the case of prime-age workers. In addition, a few other
necks, a further rise in labor force participation, and the
participants suggested that the unwelcome erosion of
waning effects of pandemic-related fiscal policy support
real incomes due to high inflation may have contributed
were cited as additional factors that could help reduce
to the increase in labor supply. Many participants indi-
the supply–demand imbalances in the economy and
cated that they expected the labor market to remain tight
lower inflation over the medium term. That said, the
_____________________________________________________________________________________________
Page 8 Federal Open Market Committee

and wage pressures to stay elevated for some time. Sev- In their discussion of risks to the outlook, participants
eral participants raised the possibility that, in light of the emphasized that they were highly attentive to inflation
exceptionally high ratio of vacancies to job searchers, a risks and would continue to monitor closely inflation de-
moderation in labor demand might serve to reduce va- velopments and inflation expectations. They agreed that
cancies and wage pressures without having significant ef- risks to inflation were skewed to the upside and cited
fects on the unemployment rate. several such risks, including those associated with ongo-
ing supply bottlenecks and rising energy and commodity
Participants observed that inflation continued to run
prices—both of which were exacerbated by the Russian
well above the Committee’s longer-run goal and that in-
invasion of Ukraine and COVID-related lockdowns in
flation pressures were evident in a broad array of goods
China. Also mentioned were the risks associated with
and services. Various participants remarked on the
nominal wage growth continuing to run above levels
hardship caused by elevated inflation and heightened in-
consistent with 2 percent inflation over time and the ex-
flation uncertainty—including by eroding American
tent to which households’ high savings since the onset
families’ real incomes and wealth and by making it more
of the pandemic and healthy balance sheets would sup-
difficult for businesses to make production and invest-
port greater-than-expected underlying momentum in
ment plans. They also pointed out that high inflation
consumer spending and contribute to upside inflation
could impede the achievement of maximum employ-
pressures. In addition, some participants emphasized
ment on a sustained basis. Participants noted that devel-
that persistently high inflation heightened the risk that
opments associated with Russia’s invasion of Ukraine,
longer-term inflation expectations could become unan-
including surges in energy and commodity prices, were
chored; in that case, the task of returning inflation to
adding to near-term inflation pressures. In addition,
2 percent would be more difficult. Uncertainty about
COVID-related lockdowns in China were likely to dis-
real activity was also seen as elevated. Various partici-
rupt global supply chains, potentially adding further up-
pants noted downside risks to the outlook, including
ward pressure on the prices paid by U.S. businesses and
risks associated with the Russian invasion and COVID-
consumers. Most participants indicated that their busi-
related lockdowns in China and the likelihood of a pro-
ness contacts had continued to report that substantial in-
longed rise in energy and commodity prices.
creases in wages and input prices were being passed
through into higher prices to their customers. A few Several participants who commented on issues related to
participants added that some of their contacts were start- financial stability noted that the tightening of monetary
ing to report that higher prices were hurting sales. A policy could interact with vulnerabilities related to the
number of participants observed that recent monthly liquidity of markets for Treasury securities and to the
data might suggest that overall price pressures may no private sector’s intermediation capacity. A couple of
longer be worsening. These participants also empha- participants pointed to increased risks in financial mar-
sized that price pressures remained elevated and that it kets linked to commodities following Russia’s invasion
was too early to be confident that inflation had peaked. of Ukraine, which had led to higher prices and volatility
Many participants commented that measures of short- across a wide range of energy, agricultural, and metal
term inflation expectations were elevated or that far-for- products. These participants observed that the trading
ward measures of inflation compensation were near the and risk-management practices of some key participants
upper edge of their historical range. Several participants in commodities markets were not fully visible to regula-
judged that measures of longer-term inflation expecta- tory authorities and noted that central counterparties
tions derived from surveys of households, professional (CCPs) needed to remain capable of managing risks as-
forecasters, and market participants still appeared to be sociated with heightened volatility or that margin re-
broadly consistent with the Committee’s longer-run in- quirements at CCPs could give rise to significant liquid-
flation objective, likely reflecting respondents’ confi- ity demands for large banks, broker-dealers, and their cli-
dence that the Federal Reserve would take the actions ents.
necessary to return inflation to 2 percent. They noted
In their consideration of the appropriate stance of mon-
that, together with appropriate firming of monetary pol-
etary policy, all participants concurred that the U.S.
icy and an eventual easing of supply constraints, well-
economy was very strong, the labor market was ex-
anchored longer-term inflation expectations would sup-
tremely tight, and inflation was very high and well above
port a return of inflation to levels consistent with the
the Committee’s 2 percent inflation objective. Against
Committee’s longer-run goal.
this backdrop, all participants agreed that it was appro-
priate to raise the target range for the federal funds rate
_____________________________________________________________________________________________
Minutes of the Meeting of May 3–4, 2022 Page 9

50 basis points at this meeting. They further anticipated monetary policy stance. They also noted that a restric-
that ongoing increases in the target range for the federal tive stance of policy may well become appropriate de-
funds rate would be warranted to achieve the Commit- pending on the evolving economic outlook and the risks
tee’s objectives. Participants also agreed that it was ap- to the outlook. Participants observed that developments
propriate to start reducing the size of the Federal Re- associated with Russia’s invasion of Ukraine and the
serve’s balance sheet on June 1, as described in the Plans COVID-related lockdowns in China posed heightened
for Reducing the Size of the Federal Reserve’s Balance risks for both the United States and economies around
Sheet that would be issued in conjunction with the the world. Several participants commented on the chal-
postmeeting statement. Participants judged that an ap- lenges that monetary policy faced in restoring price sta-
propriate firming of the stance of monetary policy, along bility while also maintaining strong labor market condi-
with an eventual waning of supply–demand imbalances, tions. In light of the high degree of uncertainty sur-
would help to keep longer-term inflation expectations rounding the economic outlook, participants judged that
anchored and bring inflation down over time to levels risk-management considerations would be important in
consistent with the Committee’s 2 percent longer-run deliberations over time regarding the appropriate policy
goal. stance. Many participants judged that expediting the re-
moval of policy accommodation would leave the Com-
All participants reaffirmed their strong commitment and
mittee well positioned later this year to assess the effects
determination to take the measures necessary to restore
of policy firming and the extent to which economic de-
price stability. To this end, participants agreed that the
velopments warranted policy adjustments.
Committee should expeditiously move the stance of
monetary policy toward a neutral posture, through both Committee Policy Action
increases in the target range for the federal funds rate In their discussion of monetary policy for this meeting,
and reductions in the size of the Federal Reserve’s bal- members agreed that, although overall economic activity
ance sheet. Most participants judged that 50 basis point had edged down in the first quarter, household spending
increases in the target range would likely be appropriate and business fixed investment had remained strong. Job
at the next couple of meetings. Many participants as- gains had been robust in recent months, and the unem-
sessed that the Committee’s previous communications ployment rate had declined substantially. Members also
had been helpful in shifting market expectations regard- agreed that inflation remained elevated, reflecting con-
ing the policy outlook into better alignment with the tinued supply and demand imbalances, higher energy
Committee’s assessment and had contributed to the prices, and broader price pressures.
tightening of financial conditions.
Members concurred that the invasion of Ukraine by
All participants supported the plans for reducing the size Russia was causing tremendous human and economic
of the balance sheet. This reduction, starting on June 1, hardship. Members judged that the implications of the
would work in parallel with increases in the target range war for the U.S. economy were highly uncertain. Mem-
for the policy rate in firming the stance of monetary pol- bers agreed that the invasion and related events were cre-
icy. A number of participants remarked that, after bal- ating additional upward pressure on inflation and were
ance sheet runoff was well under way, it would be ap- likely to weigh on economic activity. Members also
propriate for the Committee to consider sales of agency agreed that COVID-related lockdowns in China were
MBS to enable suitable progress toward a longer-run likely to exacerbate supply chain disruptions. In light of
SOMA portfolio composed primarily of Treasury secu- continuing inflation risks, members judged that it would
rities. Any program of sales of agency MBS would be be appropriate for the postmeeting statement to note
announced well in advance. Regarding risks related to that the Committee is highly attentive to the upside risks
the balance sheet reduction, several participants noted to inflation.
the potential for unanticipated effects on financial mar-
In their assessment of the monetary policy stance neces-
ket conditions.
sary for achieving the Committee’s maximum-employ-
Participants agreed that the economic outlook was ment and price-stability goals, members agreed that,
highly uncertain and that policy decisions should be data with appropriate firming in the stance of monetary pol-
dependent and focused on returning inflation to the icy, they expected inflation to return to the Committee’s
Committee’s 2 percent goal while sustaining strong labor 2 percent objective and the labor market to remain
market conditions. At present, participants judged that strong. In support of these goals, the Committee de-
it was important to move expeditiously to a more neutral cided to raise the target range for the federal funds rate
_____________________________________________________________________________________________
Page 10 Federal Open Market Committee

to ¾ to 1 percent and anticipated that ongoing increases $60 billion per month. The decline in
in the target range would be appropriate. In addition, holdings of Treasury securities under
the Committee decided to begin reducing its holdings of this monthly cap will include Treasury
Treasury securities and agency debt and agency mort- coupon securities and, to the extent
gage-backed securities on June 1, as described in the that coupon maturities are less than the
Plans for Reducing the Size of the Federal Reserve’s Bal- monthly cap, Treasury bills.
ance Sheet that were issued in conjunction with the
o For agency debt and agency mortgage-
postmeeting statement.
backed securities, the cap will initially
Members agreed that, in assessing the appropriate stance be set at $17.5 billion per month and
of monetary policy, they would continue to monitor the after three months will increase to
implications of incoming information for the economic $35 billion per month.
outlook and that they would be prepared to adjust the
• Over time, the Committee intends to main-
stance of monetary policy as appropriate in the event
tain securities holdings in amounts needed
that risks emerged that could impede the attainment of
to implement monetary policy efficiently
the Committee’s goals. They also concurred that their
and effectively in its ample reserves regime.
assessments would take into account a wide range of in-
formation, including readings on public health, labor o To ensure a smooth transition, the
market conditions, inflation pressures and inflation ex- Committee intends to slow and then
pectations, and financial and international develop- stop the decline in the size of the bal-
ments. ance sheet when reserve balances are
somewhat above the level it judges to
Following the monetary policy discussion, which in-
be consistent with ample reserves.
cluded a consideration of plans for reducing the size of
the balance sheet, all participants indicated support for o Once balance sheet runoff has ceased,
the proposed plans for reducing the size of the balance reserve balances will likely continue to
sheet. The Committee voted unanimously to adopt the decline for a time, reflecting growth in
Plans for Reducing the Size of the Federal Reserve’s Bal- other Federal Reserve liabilities, until
ance Sheet, as shown below. the Committee judges that reserve bal-
ances are at an ample level.
PLANS FOR REDUCING THE SIZE OF THE FED-
ERAL RESERVE’S BALANCE SHEET o Thereafter, the Committee will manage
securities holdings as needed to main-
(as adopted effective May 4, 2022)
tain ample reserves over time.
Consistent with the Principles for Reducing the Size of
the Federal Reserve’s Balance Sheet that were issued in • The Committee is prepared to adjust any of
January 2022, all Committee participants agreed to the the details of its approach to reducing the
following plans for significantly reducing the Federal Re- size of the balance sheet in light of eco-
serve’s securities holdings. nomic and financial developments.
After adopting the Plans for Reducing the Size of the
• The Committee intends to reduce the Fed-
Federal Reserve’s Balance Sheet, the Committee voted
eral Reserve’s securities holdings over time
to authorize and direct the Federal Reserve Bank of New
in a predictable manner primarily by adjust-
York, until instructed otherwise, to execute transactions
ing the amounts reinvested of principal pay-
in the SOMA in accordance with the following domestic
ments received from securities held in the
policy directive, for release at 2:00 p.m.:
System Open Market Account (SOMA).
Beginning on June 1, principal payments “Effective May 5, 2022, the Federal Open Mar-
from securities held in the SOMA will be ket Committee directs the Desk to:
reinvested to the extent that they exceed
monthly caps. • Undertake open market operations as nec-
essary to maintain the federal funds rate in
o For Treasury securities, the cap will in- a target range of ¾ to 1 percent.
itially be set at $30 billion per month
and after three months will increase to • Conduct overnight repurchase agreement
operations with a minimum bid rate of
_____________________________________________________________________________________________
Minutes of the Meeting of May 3–4, 2022 Page 11

1.0 percent and with an aggregate opera- events are creating additional upward pressure
tion limit of $500 billion; the aggregate op- on inflation and are likely to weigh on economic
eration limit can be temporarily increased activity. In addition, COVID-related lock-
at the discretion of the Chair. downs in China are likely to exacerbate supply
chain disruptions. The Committee is highly at-
• Conduct overnight reverse repurchase tentive to inflation risks.
agreement operations at an offering rate of
0.8 percent and with a per-counterparty The Committee seeks to achieve maximum em-
limit of $160 billion per day; the per-coun- ployment and inflation at the rate of 2 percent
terparty limit can be temporarily increased over the longer run. With appropriate firming
at the discretion of the Chair. in the stance of monetary policy, the Committee
expects inflation to return to its 2 percent ob-
• Roll over at auction the amount of princi- jective and the labor market to remain strong.
pal payments from the Federal Reserve’s In support of these goals, the Committee de-
holdings of Treasury securities maturing in cided to raise the target range for the federal
the calendar month of June that exceeds a funds rate to ¾ to 1 percent and anticipates that
monthly cap of $30 billion. Redeem ongoing increases in the target range will be ap-
Treasury coupon securities up to this propriate. In addition, the Committee decided
monthly cap and Treasury bills to the ex- to begin reducing its holdings of Treasury secu-
tent that coupon principal payments are rities and agency debt and agency mortgage-
less than the monthly cap. backed securities on June 1, as described in the
• Reinvest into agency mortgage-backed se- Plans for Reducing the Size of the Federal Re-
curities (MBS) the amount of principal serve’s Balance Sheet that were issued in con-
payments from the Federal Reserve’s hold- junction with this statement.
ings of agency debt and agency MBS re- In assessing the appropriate stance of monetary
ceived in the calendar month of June that policy, the Committee will continue to monitor
exceeds a monthly cap of $17.5 billion. the implications of incoming information for
the economic outlook. The Committee would
• Allow modest deviations from stated
be prepared to adjust the stance of monetary
amounts for reinvestments, if needed for
policy as appropriate if risks emerge that could
operational reasons.
impede the attainment of the Committee’s
• Engage in dollar roll and coupon swap goals. The Committee’s assessments will take
transactions as necessary to facilitate settle- into account a wide range of information, in-
ment of the Federal Reserve’s agency MBS cluding readings on public health, labor market
transactions.” conditions, inflation pressures and inflation ex-
pectations, and financial and international de-
The vote also encompassed approval of the statement velopments.”
below for release at 2:00 p.m.:
Voting for this action: Jerome H. Powell, John C.
“Although overall economic activity edged Williams, Michelle W. Bowman, Lael Brainard, James
down in the first quarter, household spending Bullard, Esther L. George, Patrick Harker, Loretta J.
and business fixed investment remained strong. Mester, and Christopher J. Waller.
Job gains have been robust in recent months,
and the unemployment rate has declined sub- Patrick Harker voted as an alternate member at this
stantially. Inflation remains elevated, reflecting meeting.
supply and demand imbalances related to the To support the Committee’s decision to raise the target
pandemic, higher energy prices, and broader range for the federal funds rate, the Board of Governors
price pressures. of the Federal Reserve System voted unanimously to
The invasion of Ukraine by Russia is causing raise the interest rate paid on reserve balances to
tremendous human and economic hardship. 0.90 percent, effective May 5, 2022. The Board of Gov-
The implications for the U.S. economy are ernors of the Federal Reserve System voted unanimously
highly uncertain. The invasion and related
_____________________________________________________________________________________________
Page 12 Federal Open Market Committee

to approve a ½ percentage point increase in the primary

credit rate to 1 percent, effective May 5, 2022. 5
It was agreed that the next meeting of the Committee
would be held on Tuesday–Wednesday, June 14–15,
2022. The meeting adjourned at 10:15 a.m. on May 4,
2022.
Notation Vote
By notation vote completed on April 5, 2022, the Com-
mittee unanimously approved the minutes of the Com-
mittee meeting held on March 15–16, 2022.

_______________________
James A. Clouse
Secretary

5 In taking this action, the Board approved requests to estab- eral Reserve Banks of Boston, New York, Philadelphia, Cleve-
lish that rate submitted by the Boards of Directors of the Fed- land, Richmond, Atlanta, Chicago, St. Louis, Minneapolis,
Kansas City, Dallas, and San Francisco.