Fed Monetary Policy Report June
Fed Monetary Policy Report June
EDT
June 17, 2022
The Board of Governors is pleased to submit its Monetary Policy Report pursuant to
section 2B of the Federal Reserve Act.
Sincerely,
The Federal Open Market Committee (FOMC) is firmly committed to fulfilling its statutory mandate from
the Congress of promoting maximum employment, stable prices, and moderate long-term interest rates. The
Committee seeks to explain its monetary policy decisions to the public as clearly as possible. Such clarity
facilitates well-informed decisionmaking by households and businesses, reduces economic and financial
uncertainty, increases the effectiveness of monetary policy, and enhances transparency and accountability,
which are essential in a democratic society.
Employment, inflation, and long-term interest rates fluctuate over time in response to economic and financial
disturbances. Monetary policy plays an important role in stabilizing the economy in response to these
disturbances. The Committee’s primary means of adjusting the stance of monetary policy is through changes
in the target range for the federal funds rate. The Committee judges that the level of the federal funds rate
consistent with maximum employment and price stability over the longer run has declined relative to its
historical average. Therefore, the federal funds rate is likely to be constrained by its effective lower bound
more frequently than in the past. Owing in part to the proximity of interest rates to the effective lower bound,
the Committee judges that downward risks to employment and inflation have increased. The Committee is
prepared to use its full range of tools to achieve its maximum employment and price stability goals.
The maximum level of employment is a broad-based and inclusive goal that is not directly measurable
and changes over time owing largely to nonmonetary factors that affect the structure and dynamics of the
labor market. Consequently, it would not be appropriate to specify a fixed goal for employment; rather, the
Committee’s policy decisions must be informed by assessments of the shortfalls of employment from its
maximum level, recognizing that such assessments are necessarily uncertain and subject to revision. The
Committee considers a wide range of indicators in making these assessments.
The inflation rate over the longer run is primarily determined by monetary policy, and hence the Committee
has the ability to specify a longer-run goal for inflation. The Committee reaffirms its judgment that inflation
at the rate of 2 percent, as measured by the annual change in the price index for personal consumption
expenditures, is most consistent over the longer run with the Federal Reserve’s statutory mandate. The
Committee judges that longer-term inflation expectations that are well anchored at 2 percent foster price
stability and moderate long-term interest rates and enhance the Committee’s ability to promote maximum
employment in the face of significant economic disturbances. In order to anchor longer-term inflation
expectations at this level, the Committee seeks to achieve inflation that averages 2 percent over time, and
therefore judges that, following periods when inflation has been running persistently below 2 percent,
appropriate monetary policy will likely aim to achieve inflation moderately above 2 percent for some time.
Monetary policy actions tend to influence economic activity, employment, and prices with a lag. In setting
monetary policy, the Committee seeks over time to mitigate shortfalls of employment from the Committee’s
assessment of its maximum level and deviations of inflation from its longer-run goal. Moreover, sustainably
achieving maximum employment and price stability depends on a stable financial system. Therefore, the
Committee’s policy decisions reflect its longer-run goals, its medium-term outlook, and its assessments of
the balance of risks, including risks to the financial system that could impede the attainment of the
Committee’s goals.
The Committee’s employment and inflation objectives are generally complementary. However, under
circumstances in which the Committee judges that the objectives are not complementary, it takes into account
the employment shortfalls and inflation deviations and the potentially different time horizons over which
employment and inflation are projected to return to levels judged consistent with its mandate.
The Committee intends to review these principles and to make adjustments as appropriate at its annual
organizational meeting each January, and to undertake roughly every 5 years a thorough public review of its
monetary policy strategy, tools, and communication practices.
Contents
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Recent Economic and Financial Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Monetary Policy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Special Topics. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
List of Boxes
Developments in Global Supply Chains. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Developments in Employment and Earnings across Groups . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Developments Related to Financial Stability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Global Inflation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Monetary Policy in Foreign Economies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Monetary Policy Rules in the Current Environment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Developments in the Federal Reserve’s Balance Sheet and Money Markets. . . . . . . . . . . . . . . 49
Forecast Uncertainty. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Note: This report reflects information that was publicly available as of 4 p.m. EDT on June 15, 2022.
Unless otherwise stated, the time series in the figures extend through, for daily data, June 14, 2022; for
monthly data, May 2022; and, for quarterly data, 2022:Q1. In bar charts, except as noted, the change for a
given period is measured to its final quarter from the final quarter of the preceding period.
For figures 23, 36, and 42, note that the S&P/Case-Shiller U.S. National Home Price Index, the S&P 500 Index, and the Dow Jones Bank Index are
products of S&P Dow Jones Indices LLC and/or its affiliates and have been licensed for use by the Board. Copyright © 2022 S&P Dow Jones Indices LLC, a
division of S&P Global, and/or its affiliates. All rights reserved. Redistribution, reproduction, and/or photocopying in whole or in part are prohibited without
written permission of S&P Dow Jones Indices LLC. For more information on any of S&P Dow Jones Indices LLC’s indices, please visit www.spdji.com.
S&P® is a registered trademark of Standard & Poor’s Financial Services LLC, and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings
LLC. Neither S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their affiliates, nor their third-party licensors make any representation or
warranty, express or implied, as to the ability of any index to accurately represent the asset class or market sector that it purports to represent, and neither
S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their affiliates, nor their third-party licensors shall have any liability for any errors,
omissions, or interruptions of any index or the data included therein.
1
Summary
In the first part of the year, inflation remained Recent Economic and Financial
well above the Federal Open Market Developments
Committee’s (FOMC) longer-run objective
of 2 percent, with some inflation measures Inflation. Consumer price inflation, as
rising to their highest levels in more than measured by the 12-month change in the
40 years. These price pressures reflect supply price index for personal consumption
and demand imbalances, higher energy and expenditures (PCE), rose from 5.8 percent
food prices, and broader price pressures, in December 2021 to 6.3 percent in April, its
including those resulting from an extremely highest level since the early 1980s and well
tight labor market. In the labor market, above the FOMC’s objective of 2 percent.
demand has remained strong, and supply This increase was driven by an acceleration of
has increased only modestly. As a result, the retail food and energy prices, reflecting further
unemployment rate fell noticeably below the increases in commodity prices due to Russia’s
median of FOMC participants’ estimates of invasion of Ukraine. The 12-month measure
its longer-run normal level, and nominal wages of inflation that excludes the volatile food and
continued to rise rapidly. Although overall energy categories (so-called core inflation)
economic activity edged down in the first rose initially and then fell back to 4.9 percent
quarter, household spending and business fixed in April, unchanged from last December.
investment remained strong. The most recent Three-month measures of core inflation have
indicators suggest that private fixed investment softened since December but remain far
may be moderating, but consumer spending above levels consistent with price stability.
remains strong. Measures of near-term inflation expectations
continued to rise markedly, while longer-term
In response to sustained inflationary pressures expectations moved up by less.
and a strong labor market, the FOMC has
been adjusting its policies and communications The labor market. Demand for labor continued
since last fall. At its March meeting, the to outstrip available supply across many parts
FOMC raised the target range for the federal of the economy, and nominal wages continued
funds rate off the effective lower bound to ¼ to to increase at a robust pace. While labor
½ percent. The Committee continued to raise demand remained very strong, labor supply
the target range in May and June, bringing increased only modestly. As a result, the labor
it to 1½ to 1¾ percent following the June market tightened further between December
meeting, and indicated that ongoing increases and May, with job gains averaging 488,000 per
are likely to be appropriate. The Committee month and the unemployment rate falling
ceased net asset purchases in early March and from 3.9 percent to 3.6 percent—just above the
began reducing its securities holdings in June. bottom of its range over the past 50 years.
The Committee is acutely aware that high Economic activity. Real gross domestic
inflation imposes significant hardship, product (GDP) is reported to have surged at a
especially on those least able to meet the 6.9 percent annual rate in the fourth quarter of
higher costs of essentials. The Committee’s 2021 and then to have declined at a 1.5 percent
commitment to restoring price stability— annual rate in the first quarter. The large
which is necessary for sustaining a strong labor swings in growth rates reflected fluctuations
market—is unconditional. in the volatile expenditure categories of net
2 Summary
exports and inventory investment. Abstracting expected inflation, the ongoing supply
from these volatile components, growth in disruptions related to COVID-19, and Russia’s
private domestic final demand (consumer invasion of Ukraine—the financial system
spending plus residential and business fixed has been resilient, though portions of the
investment—a measure that tends to be more commodities markets temporarily experienced
stable and better reflects the strength of elevated levels of stress. The drop in equity
overall economic activity) was strong in the prices and rising bond spreads suggest that
first quarter, supported by some unwinding valuation pressures in corporate securities
of supply bottlenecks and a further reopening markets have eased some from their previously
of the economy. The most recent indicators elevated levels, but real estate prices have
suggest that private fixed investment may be risen further this year. While business and
moderating, but consumer spending remains household debt has been growing solidly, the
strong. As a result, real GDP appears on track ratio of credit to GDP has decreased to near
to rise moderately in the second quarter. pre-pandemic levels and most indicators of
credit quality remained robust, suggesting that
Financial conditions. Financial conditions have vulnerabilities from nonfinancial leverage are
tightened significantly this year. The expected moderate. Large bank capital ratios dipped
path of the federal funds rate over the next few in the first quarter, but overall leverage in the
years shifted up substantially, and yields on financial sector appears moderate and little
nominal Treasury securities across maturities changed this year. Recent strains experienced
have risen considerably since late February in markets for stablecoins—digital assets that
amid sustained inflationary pressures and aim to maintain a stable value relative to a
associated expectations for further monetary national currency or other reference assets—
policy tightening. Equity prices were volatile and other digital assets have highlighted the
and declined sharply, on net, while corporate structural fragilities in that rapidly growing
bond yields increased substantially and spreads sector. A few signs of funding pressures
increased notably, partly reflecting some emerged amid the geopolitical tensions,
concerns about the future corporate credit particularly in commodities markets. However,
outlook. Mortgage rates also rose sharply. In broad funding markets proved resilient,
turn, tighter financial conditions may have and with direct exposures of U.S. financial
begun to weigh on some financing activity. On institutions to Russia and Ukraine being small,
the business side, nonfinancial corporate bond financial spillovers have been limited to date.
issuance was solid in the first quarter but slowed
somewhat in April and May, with speculative- International developments. Economic
grade bond issuance being particularly activity has continued to recover in many
weak. That said, the growth of bank loans to foreign economies, albeit with new significant
businesses picked up, and business credit quality headwinds from Russia’s invasion of Ukraine
has remained strong thus far. For households, and COVID lockdowns in China. These
mortgage originations declined materially. headwinds have, on net, pushed commodity
Nevertheless, mortgage credit remained prices higher, worsened supply disruptions, and
broadly available for a wide range of potential lowered household and business confidence,
borrowers. For other consumer loans (such as thus damping the rebound in foreign economic
auto loans and credit cards), credit standards activity. As in the United States, consumer
eased somewhat further or changed little, and price inflation abroad is high and has
credit outstanding grew briskly. continued to rise in many economies, boosted
by higher energy, food, and other commodity
Financial stability. Despite experiencing prices as well by supply chain constraints. In
a series of adverse shocks—higher-than- response, many foreign central banks have
MONETARY POLICY REPORT: JUNE 2022 3
raised policy rates, and some have started to with those principles, the Committee
reduce the size of their balance sheets. announced in May its specific plans for
significantly reducing its securities holdings
Foreign financial conditions have tightened and that these reductions would begin on
notably since the beginning of the year, in part June 1.1
reflecting the tightening in foreign monetary
policy and concerns about persistently high The Committee acutely recognizes the
inflation. Sovereign bond yields in many significant hardship caused by elevated
advanced foreign economies rose. Foreign inflation, especially on those least able to meet
risky asset prices declined, also driven by the higher costs of essentials. The Committee
downside risks to the growth outlook amid is strongly committed to restoring price
the lockdowns in China and Russia’s invasion stability, which is necessary for sustaining a
of Ukraine. The trade-weighted value of the strong labor market.
dollar appreciated notably.
Special Topics
Monetary Policy
Labor market disparities. The labor market
In response to significant ongoing inflation recovery over the past year and a half has
pressures and the tightening labor market, the been robust and widespread as the labor
Committee has been adjusting its policies and market effects of the pandemic have eased,
communications since last fall. The Committee with particularly strong improvement among
wound down net purchases of securities and groups that had suffered the most. As a result,
began reducing those securities holdings more employment and earnings of nearly all major
rapidly than expected, and also initiated a swift demographic groups are near or above their
increase in interest rates. Adjustments to both levels before the pandemic, and employment
interest rates and the balance sheet are playing rates are again near multidecade highs.
a role in firming the stance of monetary policy However, there remain notable differences in
in support of the Committee’s maximum- employment and earnings across groups that
employment and price-stability goals. predate the pandemic.
Interest rate policy. In March, after holding Developments in global supply chains. Supply
the federal funds rate near zero since the chain bottlenecks remain a major impediment
onset of the pandemic, the FOMC raised the for domestic and foreign firms. While U.S.
target range for that rate to ¼ to ½ percent. manufacturers have been recording solid
The Committee raised the target range again output growth for more than a year, order
in May and June, bringing it to the current backlogs and delivery times remain high, and
range of 1½ to 1¾ percent, and conveyed producer prices have risen rapidly. Further
its anticipation that ongoing increases in the risks to global supply chains abound. In
target range will be appropriate. China, COVID-19 lockdowns drove the largest
monthly declines in industrial production there
Balance sheet policy. The Federal Reserve since early 2020 while also disrupting internal
began reducing its monthly net asset purchases and international freight transportation. In
last November and accelerated the reductions addition, the war in Ukraine continues to put
in December, bringing net purchases to an
end in early March. In January, the FOMC 1. See the May 4, 2022, press release regarding the
issued a set of principles regarding its planned Plans for Reducing the Size of the Federal Reserve’s
approach for significantly reducing the size of Balance Sheet, available at https://www.federalreserve.
the Federal Reserve’s balance sheet. Consistent gov/newsevents/pressreleases/monetary20220504b.htm.
4 Summary
upward pressure on energy and food prices banks have tightened monetary policy.
and has raised the risk of disruption in the Policy tightening started last year as some
supply of inputs to some manufacturing emerging market central banks, particularly
industries. those in Latin America, were concerned that
sharp increases in inflation could become
Monetary policy rules. Simple monetary policy entrenched in inflation expectations. Since
rules, which relate a policy interest rate to a fall 2021, many central banks in the advanced
small number of other economic variables, foreign economies have also started tightening
can provide useful guidance to policymakers. monetary policy or are expected to do so soon,
Many simple policy rules prescribed strongly and several central banks that had expanded
negative values for the federal funds rate their balance sheets over the past two years are
during the pandemic-driven recession. now allowing them to shrink.
With inflation running well in excess of the
Committee’s 2 percent longer-run objective, a Developments in the Federal Reserve’s balance
strong U.S. economy, and tight labor market sheet. Following the conclusion of net asset
conditions, the simple monetary policy rules purchases, the balance sheet remained stable
considered here call for raising the target range at around $9 trillion. Alongside the removal of
for the federal funds rate significantly. policy accommodation—through actual and
expected increases in the policy rate—plans
Global inflation. Inflation abroad rose rapidly for shrinking the size of the balance sheet
over the past year, reflecting soaring food and were announced in May and were initiated
commodity prices, pandemic-related supply in June. Despite the size of the balance sheet
disruptions, and demand imbalances between remaining steady, reserve balances fell, in
goods and services. The price pressures have large part because of increasingly elevated
been amplified by the war in Ukraine and take-up at the overnight reverse repurchase
COVID-19 lockdowns in China. Although agreement (ON RRP) facility, which reached a
the recent inflation surge was concentrated in record high of $2.2 trillion. In an environment
volatile components, such as food and energy, of ample liquidity, limited Treasury bill
price increases have broadened to core goods supply, and low repurchase agreement rates,
and services. the ON RRP facility continued to serve its
intended purpose of helping to provide a floor
Global monetary policy. With inflation under short-term interest rates and to support
rising sharply across the globe, many central effective implementation of monetary policy.
5
Part 1
Recent Economic and Financial Developments
Domestic Developments
Inflation continued to run high . . .
After surging 5.8 percent over 2021—the 1. Change in the price index for personal consumption
largest increase since 1981—the price index expenditures
for personal consumption expenditures (PCE) Monthly Percent change from year earlier
continued to post notable increases so far 7.0
this year, and the change over the 12 months 6.5
6.0
ending in April stood at 6.3 percent (figure 1). 5.5
This pace is well above the FOMC’s longer-run 5.0
4.5
objective of 2 percent. 4.0
3.5
Trimmed mean 3.0
. . . reflecting further large increases in 2.5
food and energy prices . . . 2.0
1.5
Excluding food Total 1.0
Grocery prices increased at a very rapid pace and energy .5
of 10 percent over the 12 months ending in 0
April, more than 4 percentage points faster 2014 2015 2016 2017 2018 2019 2020 2021 2022
than over the 12 months ending in December NOTE: The data extend through April 2022.
SOURCE: For trimmed mean, Federal Reserve Bank of Dallas; for all
and the highest reading since 1981 (figure 2). else, Bureau of Economic Analysis; all via Haver Analytics.
Food commodity prices (such as wheat and
corn), which had already increased last year,
have risen further since Russia’s invasion of
Ukraine. At the same time, high fuel costs,
supply chain bottlenecks, and high wage
growth have also pushed up processing,
packaging, and transportation costs for food.
Percent change from year earlier Percent change from year earlier Monthly Percent change from year earlier
60 12
8
50 10
40 8 6
30 6 Housing
services 4
20 Food and 4
beverages
Services 2
10 2 ex energy
+ + and housing +
0_ 0
_ 0
_
10 2 Goods ex food,
Energy beverages, and 2
20 4 energy
2018 2019 2020 2021 2022 2018 2019 2020 2021 2022
NOTE: The data are monthly and extend through April 2022. NOTE: The data extend through April 2022.
SOURCE: Bureau of Economic Analysis via Haver Analytics. SOURCE: Bureau of Economic Analysis via Haver Analytics.
6 Part 1: Recent Economic and Financial Developments
3. Spot and futures prices for crude oil about the same pace as over the 12 months
Weekly Dollars per barrel
ending in December. Large increases in crude
oil and natural gas commodity prices have
160 boosted consumer prices for gasoline and
140 natural gas.
Brent spot price 120
Weekly Week ending January 3, 2014 = 100 Nonfuel commodity prices also surged after
the invasion, with large increases in the
180
prices of both agricultural commodities and
160 industrial metals (figure 4). Although the price
140 of industrial metals has declined recently,
Industrial metals agricultural prices remain elevated. Ukraine
120
and Russia are notable exporters of wheat,
100 Russia is a major exporter of fertilizer, and
80 higher energy prices are spilling over into the
Agriculture
and livestock
60
agricultural sector. Export restrictions and
unfavorable weather conditions in several
2014 2015 2016 2017 2018 2019 2020 2021 2022 countries have also boosted agricultural prices.
NOTE: The data are weekly averages of daily data and extend through (See the box “Developments in Global Supply
June 10, 2022.
SOURCE: For industrial metals, S&P GSCI Industrial Metals Index
Chains.”)
Spot; for agriculture and livestock, S&P GSCI Agriculture & Livestock
Spot Index; both via Haver Analytics.
With commodity prices surging and foreign
goods prices on the rise, import prices
5. Nonfuel import price index increased significantly (figure 5).
Monthly 12-month percent change
20
90
15
80
10
70 5
+
0_
Feb. Apr. Jun. Aug. Oct. Dec. Feb. Apr.
2021 2022 5
NOTE: The data extend through April 2022. The data are adjusted 10
using Federal Reserve Board seasonal factors.
SOURCE: Ward’s Automotive Group, AutoInfoBank and Intelligence
Data Query; Chrysler Group LLC, North American Production Data; 2017 2018 2019 2020 2021 2022
General Motors Corporation, GM Motor Vehicle Assembly Production
Data. SOURCE: Bureau of Labor Statistics via Haver Analytics.
MONETARY POLICY REPORT: JUNE 2022 9
Risks to supply chain conditions abound, including The invasion of Ukraine by Russia is causing
those arising from COvID-19 lockdowns in China economic hardship. For instance, the conflict has
beginning in mid-March and the ongoing war in disrupted global commodity markets in which Ukraine
Ukraine.1 Committed to their zero-COvID strategy, and Russia account for significant shares of global
Chinese authorities ratcheted up restrictions quickly exports. Notably, energy prices have soared, as
in the face of rising cases of the Omicron variant, (continued on next page)
which included a complete lockdown of Shanghai.
The containment strategy managed to reduce case
counts, allowing authorities to begin relaxing some E. China’s purchasing managers index: Supplier delivery times
citywide restrictions in late April. The lockdowns drove
Monthly Diffusion index
the largest monthly declines in Chinese activity since
early 2020, with industrial production dropping about
13 percent between February and April (figure D) 70
before recovering some in May. With severely disrupted
domestic logistics, supplier delivery times increased 65
sharply in April and continued increasing in May, but
not as strongly (figure E). Chinese international trade 60
was also hit, contracting in the three months before
April (figure F). As Chinese production continues to 55
recover, the associated rebound in trade flows may
further strain international transportation networks. 50
1. The July 1 expiration of the contract between NOTE: The series is seasonally adjusted. Values greater than 50
indicate that more respondents reported longer delivery times relative to
dockworkers and West Coast port operators poses an a month earlier than reported shorter delivery times.
additional risk for shipping-related disruption. SOURCE: Caixin; S&P Global; both via Haver Analytics.
D. Chinese industrial production and retail sales F. Nominal trade growth in China
12 Exports 200
Industrial production
8
150
4
+ Imports 100
0_
4 50
+
8 0_
Retail sales
12
50
16
Jan. Mar. May July Sept. Nov. Jan. Mar. May Jan. Mar. May July Sept. Nov. Jan. Mar. May
2021 2022 2021 2022
NOTE: Industrial production data are adjusted using Federal Reserve NOTE: All series are seasonally adjusted at an annual rate using
Board seasonal factors. Retail sales data are seasonally adjusted by the Federal Reserve Board seasonal factors. The data are 3-month moving
National Bureau of Statistics of China. averages.
SOURCE: National Bureau of Statistics of China via Haver Analytics; SOURCE: General Administration of Customs, China, via Haver
Federal Reserve Board staff calculations. Analytics.
10 Part 1: Recent Economic and Financial Developments
increasing geopolitical tensions have put the supply (figure G). The global transportation system has also
of Russian oil and gas to Europe at risk. Indeed, proved mostly resilient to the war, with signs of further
Russian energy exports have already been falling amid strain in only a couple of sectors. Oil tanker charter
embargos on Russian oil, self-sanctioning by some rates spiked, boosted by a rise in demand as oil started
companies, transportation difficulties, and Russia’s to move to new markets, while truck transportation
decision to halt gas deliveries to several European prices rose further, reflecting higher diesel fuel costs.
countries. The prices of several nonfuel commodities
that are vital inputs to some manufacturing industries
jumped in the early days of the conflict, including
neon gas (an input in semiconductor chip production), G. Purchasing managers index: Supplier delivery times
palladium (an input in semiconductors and catalytic Monthly Diffusion index
converters), nickel (an input in electric vehicles’
batteries), and platinum. However, prices have 90
United Kingdom 85
since retreated to near pre-invasion levels as major
disruptions have failed to materialize thus far. Finally, 80
blocked shipping routes in the Black Sea have severed 75
the region’s agricultural exports, disrupting global food 70
markets. As a result, prices of corn, wheat, sunflower 65
oil, and fertilizer have climbed to record-high levels, 60
raising concerns of food insecurity across the globe. 55
Further aggravating the situation, a number of countries 50
introduced export bans on some food commodities to 45
Euro area
contain rising domestic food prices. 40
Thus far, the war appears to have had more limited 2019 2020 2021 2022
effects on other aspects of global supply chains.
NOTE: The series are seasonally adjusted. Values greater than 50
The effect on supplier delivery times across Europe indicate that more respondents reported longer delivery times relative to
has been muted, suggesting that the repercussions a month earlier than reported shorter delivery times.
SOURCE: For the United Kingdom, S&P Global and the Chartered
for manufacturers in the region have been relatively Institute of Procurement & Supply; for the euro area, S&P Global; all via
modest so far outside of the shifts in commodity prices Haver Analytics.
MONETARY POLICY REPORT: JUNE 2022 11
range of near-term as well as longer-term 2010 2012 2014 2016 2018 2020 2022
expectation measures, edged up in the first half NOTE: The data are at a business-day frequency and are estimated
of this year and now stands at the high end of from smoothed nominal and inflation-indexed Treasury yield curves.
SOURCE: Federal Reserve Bank of New York; Federal Reserve Board
the range from the past 20 years. staff calculations.
in May, just above the bottom of its range SOURCE: Bureau of Labor Statistics via Haver Analytics.
12 Part 1: Recent Economic and Financial Developments
Monthly Percent
20
18
Black or African American
16
14
12
Hispanic or Latino
10
White 8
6
Asian
4
either working or actively seeking work, 11. Labor force participation rate and
edged up just 0.1 percentage point in the employment-to-population ratio
first five months of the year—following a Monthly Percent
0.4 percentage point improvement last year—
68
to 62.3 percent in May (figure 11).2
Labor force participation rate 66
64
Despite these improvements, the LFPR
62
remains 1.1 percentage points below its Employment-to-
population ratio 60
February 2020 level.3 About one-half of 58
this decline in the participation rate was 56
to be expected even in the absence of the 54
pandemic, as additional members of the 52
large baby-boom generation have reached 50
retirement age. In addition, several pandemic- 2006 2008 2010 2012 2014 2016 2018 2020 2022
related factors appear to be continuing to
NOTE: The labor force participation rate and the employment-
hold down the participation rate, including to-population ratio are percentages of the population aged 16 and over.
SOURCE: Bureau of Labor Statistics via Haver Analytics.
a pandemic-induced surge in retirements
(beyond that implied by the aging of the
baby boomers) and, to a diminishing extent,
increased caregiving responsibilities and
some continuing concerns about contracting
COVID-19.
education.4 However, with schools having generally year, these childcare burdens likely eased, allowing
provided in-person education for the 2021–22 school many parents to reenter the workforce.
(continued on next page)
4. The increase in the share of mothers of school-age
children who reported being out of the labor force due to
caregiving closely tracked the degree to which schools were See Joshua Montes, Christopher Smith, and Isabel Leigh
fully closed to in-person learning over the 2020–21 school (2021), “Caregiving for Children and Parental Labor Force
year, and districts that serve more Blacks and Hispanics Participation during the Pandemic,” FEDS Notes (Washington:
were less likely to provide fully in-person education during Board of Governors of the Federal Reserve System,
the 2020–21 school year, which may account for some November 5), https://www.federalreserve.gov/econres/notes/
of the larger and more persistent declines in labor force feds-notes/caregiving-for-children-and-parental-labor-force-
attachment for Black and Hispanic mothers over this period. participation-during-the-pandemic-20211105.htm.
A. Changes in employment-to-population ratio compared with the 2019 average ratio, by group
55 to 64 2 4
+
0_ Asian 2
65+ +
2 0_
4 White 2
25 to 54
6 Black or 4
8 African American 6
10 8
12 10
16 to 24 14 Hispanic or Latino 12
16 14
Women, college 4
2
Men, college or more 2 +
or more + 0_
0_
2 Nonparents 2
4 4
6 Parents
Men, high school 6
8
or less
10 8
Women, high school 12
10
or less
14
12
16
12. Ratio of job openings to job seekers and quits rate about 5½ million at the end of April, near the
Percent of employment Ratio
highest level on record.9 The share of workers
quitting jobs each month, an indicator of the
3.2 2.4 availability of attractive job prospects, was
2.8
2.1 2.9 percent at the end of April, near the all-
Nonfarm quits rate 1.8 time high reported in November (figure 12).
2.4 1.5 Initial claims for unemployment benefits
2.0 1.2 remain near the lowest levels observed in
1.6 .9 the past 50 years. Households’ and small
.6 businesses’ perceptions of labor market
1.2
Vacancy-to- .3 tightness were near or above the highest
.8 unemployment ratio 0 levels observed in the history of these series.
And, finally, employers continued to report
2006 2008 2010 2012 2014 2016 2018 2020 2022
widespread hiring difficulties.
NOTE: The data are monthly and extend through April 2022. The
vacancy-to-unemployment ratio data are the ratio of job openings to
unemployed. That said, some possible signs of modest
SOURCE: Bureau of Labor Statistics, Job Openings and Labor
Turnover Survey. easing of labor market tightness have recently
appeared. For example, as noted in the next
section, some measures of wage growth appear
to have moderated. And in the June 2022 Beige
Book, employers in some Federal Reserve
Districts reported some signs of modest
13. Measures of change in hourly compensation
improvement in worker availability.
moderating, but consumer spending remains 16. Real personal consumption expenditures
strong and drag from inventory investment Trillions of chained 2012 dollars Trillions of chained 2012 dollars
and net exports may be dissipating. As a
result, private domestic final demand and real 6.0 9.5
GDP appear on track to rise moderately in the 5.5 9.0
second quarter. 5.0
8.5
4.5
Real consumer spending growth Goods
8.0
4.0
remained strong . . . 7.5
3.5
Real consumer spending—that is, spending Services 7.0
3.0
after adjusting for inflation—continued to 6.5
2.5
grow briskly, supported by a partial unwinding
of supply bottlenecks and continued 2006 2008 2010 2012 2014 2016 2018 2020 2022
normalization of spending patterns as the NOTE: The data are monthly and extend through April 2022.
pandemic fades. For example, spending SOURCE: Bureau of Economic Analysis via Haver Analytics.
Student loans
40 Consumer financing conditions were
Auto loans
Credit cards Apr.
generally accommodative, especially for
30
borrowers with stronger credit scores
20
Financing has been generally available to
10
+
support consumer spending. Following a
Q1 _0 period of widespread reported easing last year,
10 standards on credit card loans eased somewhat
20
further in the first quarter, whereas those on
auto and other consumer loans changed little.
2008 2010 2012 2014 2016 2018 2020 2022 Partly reflecting higher credit card purchase
SOURCE: Federal Reserve Board, Statistical Release G.19, “Consumer volumes, credit card balances grew rapidly in
Credit.” recent months (figure 19). Even so, many credit
card users still have ample unused credit. Auto
20. Private housing starts and permits loans grew briskly during the first quarter,
consistent with the concurrent rebound in
Monthly Millions of units, annual rate
auto sales.
2.0
1.8 Meanwhile, borrowing costs rose. However,
1.6
they remain below pre-pandemic levels for
Single-family starts 1.4
1.2
credit cards and auto loans, partly reflecting
1.0 strong consumer credit quality. Indeed,
.8 delinquency rates on consumer loans remain
Single-family
permits
.6 low relative to historical averages despite some
.4 recent increases among nonprime borrowers.
.2
Multifamily starts
0
Housing construction remained high but
2006 2008 2010 2012 2014 2016 2018 2020 2022 may be moderating . . .
NOTE: The data extend through April 2022.
SOURCE: U.S. Census Bureau via Haver Analytics. New single-family construction has remained
well above pre-pandemic levels. However,
21. Mortgage rates
new construction may be softening, with
single-family permits turning down some in
Weekly Percent March and April (figure 20). As in the past
year, still-tight supplies of materials, labor,
5.5
and other inputs may still be restraining new
5.0 construction. Also, builders have become
4.5 distinctly less optimistic about prospects for
4.0
housing sales, perhaps owing to the sharp rise
in mortgage rates (figure 21).
3.5
(figure 22). Some of this decline may have 22. New and existing home sales
reflected further reductions in inventories Millions, annual rate Millions, annual rate
of existing homes to historically low levels
early in the year. In addition, the sharp 7.0 1.4
increases in mortgage rates may have begun to 6.5
1.2
moderate housing demand. Even so, financing 6.0 Existing home sales
1.0
conditions in the residential mortgage market 5.5
remained accommodative for borrowers who 5.0 .8
met standard loan criteria, and the terms of 4.5 .6
mortgage credit for households with lower 4.0
.4
credit scores continued to ease toward pre- 3.5
New home sales
pandemic levels. Listings, sales, and price data 3.0 .2
expenditures. In turn, strong investment NOTE: Series are deflated by the personal consumption expenditures
price index.
demand continued to boost equipment prices SOURCE: Bureau of Economic Analysis via Haver Analytics;
CoreLogic Home Price Index; Zillow, Inc., Real Estate Data;
in an environment of constrained supply, S&P/Case-Shiller U.S. National Home Price Index. The S&P/Case-Shiller
but there have been initial signs that supply index is a product of S&P Dow Jones Indices LLC and/or its affiliates.
(For Dow Jones Indices licensing information, see the note on the
constraints may have begun to ease. In Contents page.)
particular, since late last year, shipments of
capital goods have begun to catch up with
orders. The most recent indicators suggest that
the growth of investment in equipment and
intangibles will slow significantly in the second
quarter, possibly reflecting drag from tighter
financial conditions.
24. Real business fixed investment 2021, and it appears on track to decline again
Billions of chained 2012 dollars Billions of chained 2012 dollars
in the second quarter. Declines in spending on
nondrilling structures have been only partly
650 Equipment and
intangible capital
2,600 offset by rapid increases in drilling investment,
600
2,400 which reflect the recent rise in energy prices.
2,200
550 2,000 Business financing conditions tightened
500 1,800 somewhat but remained generally
450 1,600 accommodative
1,400
400 Credit remained available to most nonfinancial
Structures 1,200
350
corporations, but financing conditions
1,000
tightened somewhat, especially for lower-
2007 2010 2013 2016 2019 2022 rated firms. Gross nonfinancial corporate
NOTE: Business fixed investment is known as “private nonresidential bond issuance was solid in the first quarter
fixed investment” in the national income and product accounts. The data
are quarterly.
but slowed somewhat in April and May, with
SOURCE: Bureau of Economic Analysis via Haver Analytics. speculative-grade bond issuance particularly
weak. Leveraged loan issuance also declined
notably in May, partly reflecting weakening
demand from retail investors. The growth of
business loans at banks picked up from the
subdued pace of last year, reflecting stronger
loan originations as well as a moderation in
loan forgiveness associated with the Paycheck
Protection Program.
under high pressure, which has continued to 26. U.S. trade and current account balances
impair the timely delivery of goods to U.S. Quarterly Percent of nominal GDP
customers. Real goods exports have only
+
recovered to pre-pandemic levels. Real exports 0
_
and imports of services remain subdued, 1
reflecting a slow recovery of international 2
travel. Given the recent strength of imports 3
relative to the milder recovery in exports, the
4
nominal trade deficit widened further as a Trade
5
share of GDP (figure 26).
6
27. Federal receipts and expenditures activity—caused the federal deficit to surge to
Annual Percent of nominal GDP
15 percent of nominal GDP in fiscal 2020 and
remain elevated at 12½ percent in fiscal 2021.
32 But with pandemic fiscal programs having
30
largely ended and receipts surging, the deficit
28
has fallen sharply thus far in fiscal 2022 relative
26
Expenditures to fiscal 2021 and, by the end of the fiscal year,
24
is expected to be close to the deficits prevailing
22
Receipts
20
just before the pandemic (figure 27).
18
16
As a result of the fiscal support enacted during
14 the pandemic, federal debt held by the public
jumped to around 100 percent of nominal
1997 2002 2007 2012 2017 2022
GDP in fiscal 2020—the highest debt-to-
NOTE: Through 2021, the receipts and expenditures data are on a
unified-budget basis and are for fiscal years (October to September); GDP ratio since 1947 (figure 28). But with
gross domestic product (GDP) is for the 4 quarters ending in Q3. For deficits falling and economic growth having
2022, receipts and expenditures are for the 12 months ending in May;
GDP is the average of 2021:Q4 and 2022:Q1. rebounded, the debt-to-GDP ratio has since
SOURCE: Department of the Treasury, Financial Management Service;
Office of Management and Budget and Bureau of Economic Analysis via receded slightly from its recent peak.
Haver Analytics.
State and local government budget
28. Federal government debt and net interest outlays positions are remarkably strong . . .
Percent of nominal GDP Percent of nominal GDP Federal policymakers provided a historic
Net interest outlays level of fiscal support to state and local
3.5 on federal debt 120
governments during the pandemic, with
3.0 100 aid totaling about $1 trillion. This aid has
2.5 80 more than covered pandemic-related budget
2.0 60
shortfalls in the aggregate. Moreover, following
the pandemic-induced slump, total state tax
1.5 40
collections—pushed up by the economic
1.0 Debt held by
20 expansion—rose appreciably in 2021 and
.5
the public
0 continued to grow rapidly in early 2022
(figure 29). In turn, this recovery in revenues
1902 1922 1942 1962 1982 2002 2022 has led some state governments to enact or
NOTE: The data for net interest outlays are annual, begin in 1948, and consider enacting tax cuts. At the local level,
extend through 2021. Net interest outlays are the cost of servicing the
debt held by the public. Federal debt held by the public equals federal property taxes have continued to rise apace,
debt less Treasury securities held in federal employee defined-benefit
retirement accounts, evaluated at the end of the quarter. The data for
and the typically long lags between changes
federal debt are annual from 1901 to 1951 and quarterly thereafter. GDP in the market value of real estate and changes
is gross domestic product.
SOURCE: For GDP, Bureau of Economic Analysis; for federal debt, in tax collections suggest that property tax
Congressional Budget Office and Federal Reserve Board, Statistical
Release Z.1, “Financial Accounts of the United States.”
revenues will rise quite substantially going
forward, given the rise in house prices.
have regained about 60 percent of their sizable 29. State and local tax receipts
pandemic losses, falling well short of the Percent change from year earlier
recovery in private payrolls (figure 30). One
reason for this disparity appears to be that 30
Total state taxes
public-sector wages have not kept pace with 25
the rapid gains in the private sector, which may 20
be inhibiting the ability of these governments 15
to staff back up to pre-pandemic levels. Property taxes 10
Meanwhile, real construction outlays by state
5
and local governments continued to decline +
in the first half of the year and are currently 0
_
about 15 percent below pre-pandemic levels. 5
Financial Developments NOTE: State tax data are year-over-year percent changes of 12-month
moving averages, begin in June 2012, extend through April 2022, and are
aggregated over all states except Wyoming, for which data are not
The expected level of the federal funds available. Revenues from Washington, D.C., are also excluded. Data are
missing for March 2022 to April 2022 for New Mexico and Oregon and
rate over the next few years shifted up April 2022 for Nevada, as these states have longer reporting lags than
others. Property tax data are year-over-year percent changes of 4-quarter
substantially moving averages, begin in 2012:Q2, extend through 2021:Q4, and are
primarily collected by local governments.
SOURCE: Monthly State Government Tax Revenue Data via Urban
In March, May, and June, the FOMC raised Institute; U.S. Census Bureau, Quarterly Summary of State and Local
the target range for the federal funds rate a Government Tax Revenue.
31. Market-implied federal funds rate path the most likely path of the federal funds rate
Quarterly Percent
shifted up significantly since January.12
spreads over yields on comparable-maturity 34. Corporate bond yields, by securities rating, and
Treasury securities have increased notably municipal bond yield
since late February. Corporate bond yields Daily Percent
and spreads are somewhat above the
historical median values of their respective Investment-grade corporate 12
High-yield corporate
historical distributions since the mid-1990s 10
(figure 34). Municipal bond yields also
8
increased significantly while spreads increased
somewhat since late February. Spreads on 6
36. Equity prices remain elevated since late April amid a notable
Daily December 31, 2010 = 100
deterioration in risk sentiment (figure 37). (For
a discussion of financial stability issues, see
400 the box “Developments Related to Financial
350 Stability.”)
300
Markets for Treasury securities, mortgage-
250
backed securities, corporate and
S&P 500 index 200
municipal bonds, and equities generally
150 functioned in an orderly way, but some
Dow Jones bank index 100 measures of liquidity deteriorated
50
Liquidity conditions in the market for
2012 2014 2016 2018 2020 2022 Treasury securities, which had deteriorated
SOURCE: S&P Dow Jones Indices LLC via Bloomberg. (For Dow somewhat since late 2021, in part as a result
Jones Indices licensing information, see the note on the Contents page.) of heightened interest rate risk, worsened
further in late February following Russia’s
37. S&P 500 volatility invasion of Ukraine. Market depth—a gauge
Daily Percent
of the ability to transact in large volumes at
quotes posted by market makers—for Treasury
90 securities fell and remains at historically low
80
levels. Bid-ask spreads increased somewhat.
70
However, trading volumes remained within
60
normal ranges, suggesting that market
50
VIX functioning was not materially impaired.
40
30
The decreases in depth were the greatest for
20
bonds with shorter maturities because the
10 prices of those securities are more sensitive to
Expected volatility
0 expectations for monetary policy over the near
term. The market for MBS has functioned
2010 2012 2014 2016 2018 2020 2022
in an orderly way since late February, even
NOTE: The VIX is a measure of implied volatility that represents the
expected annualized change in the S&P 500 index over the following as some measures of liquidity conditions
30 days. The expected volatility series shows a forecast of 1-month
realized volatility, using a heterogeneous autoregressive model based on
deteriorated. Measures of market functioning
5-minute S&P 500 returns. in corporate and municipal bond markets
SOURCE: Cboe Volatility Index® (VIX®) via Bloomberg; Refinitiv
DataScope; Federal Reserve Board staff estimates. indicated that the markets have remained
liquid and trading conditions have stayed
stable since late February without substantive
disruptions around the time of Russia’s
invasion of Ukraine. Transaction costs in the
corporate bond market and in the municipal
bond market have both picked up somewhat
since late February, and in the corporate bond
market, bid-ask spreads are modestly above
pre-pandemic levels. Transaction costs remain
fairly low by historical standards.. Liquidity
in equity markets has declined since late 2021
in part because of rising uncertainty about
the outlook for monetary policy as well as
Russia’s invasion of Ukraine and has remained
MONETARY POLICY REPORT: JUNE 2022 31
been able to meet these margin calls, and, in general, inflation and greater-than-expected increases in interest
CCPs effectively managed the increased risks and rates could negatively affect domestic economic
higher trading volumes. activity, asset prices, credit quality, and financial
The aggregate value of stablecoins—digital assets conditions more generally. As concerns over cyber risk
that aim to maintain a stable value relative to a have increased, U.S. government agencies and their
national currency or other reference assets—grew private-sector partners have been stepping up their
rapidly over the past year to more than $180 billion efforts to protect the financial system and other critical
in March 2022. The stablecoin sector remained highly infrastructures. These risks, if realized, could interact
concentrated, with the three largest stablecoin issuers— with financial vulnerabilities and pose additional risks
Tether, USD Coin, and Binance USD—constituting to the U.S. financial system.
more than 80 percent of the total market value.
The collapse in the value of certain stablecoins and
Invasion of Ukraine and Commodity Markets
recent strains experienced in markets for other digital
assets demonstrate the fragility of such structures. Russia’s invasion of Ukraine and subsequent
More generally, stablecoins that are not backed by international sanctions disrupted global trade in
safe and sufficiently liquid assets and are not subject commodities, leading to surging prices and heightened
to appropriate regulatory standards create risks to volatility in agriculture, energy, and metals markets.
investors and potentially to the financial system, These markets include spot and forward markets for
including susceptibility to potentially destabilizing runs. physical commodities as well as futures, options,
These vulnerabilities may be exacerbated by a lack of and swaps markets that involve an array of financial
transparency regarding the riskiness and liquidity of intermediaries and infrastructures. Stresses in financial
assets backing stablecoins. In addition, the increasing markets linked to commodities could disrupt the
use of stablecoins to meet margin requirements for efficient production, processing, and transportation
levered trading in other cryptocurrencies may amplify of commodities by interfering with the ability of
volatility in demand for stablecoins and heighten commodity producers, consumers, and traders to
redemption risks. The President’s Working Group hedge risks. Such stresses can also increase liquidity
on Financial Markets, the Federal Deposit Insurance and credit risks for financial institutions that are active
Corporation, and the Office of the Comptroller of the in commodity markets. To date, however, financial
Currency have made recommendations to address market stresses do not appear to have exacerbated
prudential risks posed by stablecoins. the negative effects on broader economic activity
A routine survey of market contacts on salient or created substantial pressure on key financial
shocks to financial stability highlights several important intermediaries, including banks. Since the invasion, for
risks. Stresses in Europe related to Russia’s invasion of most commodities, futures trading volumes and open
Ukraine or in emerging markets could spill over to the interest—the number of contracts outstanding at the
United States. In addition, higher or more persistent end of the day—have remained in normal ranges.
34 Part 1: Recent Economic and Financial Developments
2004 2006 2008 2010 2012 2014 2016 2018 2020 2022
Global Inflation
Over the past year, inflation increased rapidly in The recent surge in foreign inflation was mainly
many foreign economies, reflecting soaring commodity concentrated in volatile components, such as food and
prices, pandemic-related supply disruptions, and energy prices, with these components contributing
imbalances between demand for goods and services much more to inflation in recent months than in pre-
(figure A). More recently, the war in Ukraine and the pandemic years (figure B). In particular, energy prices
renewals of COvID-19 lockdowns in China have accounted for almost half of the 12-month headline
amplified inflationary pressures, particularly through inflation rate for the advanced foreign economies (AFEs)
higher food and energy prices. in April. Meanwhile, food prices are driving inflation
in emerging market economies, largely due to the war
A. Consumer price inflation in foreign economies and its threat to already fragile food security in these
economies.
Monthly 12-month percent change Price pressures have recently broadened to core
inflation, as elevated input costs have been increasingly
8 passed through to prices of goods and services that
have not been directly affected by supply disruptions
6 and soaring commodity prices. This broadening
EMEs ex China
of inflationary pressure is reflected in increases in
4
the share of categories of core goods and services
2 prices rising more than 3 percent in most major AFEs
AFEs ex Japan + (figure C). Furthermore, the rebalancing of demand
0
_ away from goods toward services—which would have
reduced upward pressures on prices of goods—has
2
been slower than expected so far, contributing to the
persistence of inflation pressures.
2016 2017 2018 2019 2020 2021 2022 Persistent and widening price pressures are also
NOTE: The advanced foreign economy (AFE) aggregate is the average evident in increases in market- and survey-based
of Canada, the euro area, and the United Kingdom, weighted by U.S. inflation expectations, although these expectations
goods imports. The emerging market economy (EME) aggregate is the
average of Brazil, Chile, Colombia, Hong Kong, India, Indonesia, generally remain anchored in historical ranges
Malaysia, Mexico, Philippines, Singapore, South Korea, Taiwan, and (figure D). Even though such increases in inflation
Thailand, weighted by U.S. goods imports. The inflation measure is the
Harmonised Index of Consumer Prices for the euro area and the expectations might be a welcome development for
consumer price index for other economies. economies such as Japan and the euro area that have
SOURCE: Haver Analytics.
experienced persistently below-target inflation in
recent decades, many foreign central banks have been
tightening monetary policy amid broadened price
pressures and tight labor markets.
(continued on next page)
38 Part 1: Recent Economic and Financial Developments
Percent Percent
Energy Energy
Food 8 Food 8
Core 7 Core 7
6 6
5 5
4 4
3 3
2 2
1 1
NOTE: The advanced foreign economy (AFE) aggregate is the average of Canada, the euro area, and the United Kingdom, weighted by U.S. goods
imports. The emerging market economy (EME) aggregate is the average of Argentina, Brazil, Chile, Colombia, Hong Kong, India, Israel, Mexico,
Russia, Saudi Arabia, Singapore, South Korea, and the 5 original member countries of the Association of Southeast Asian Nations, weighted by U.S.
goods imports. The inflation measure is the Harmonised Index of Consumer Prices for the euro area and the consumer price index for other economies.
The key identifies bars in order from top to bottom. The data are 12-month percent changes for AFEs and 4-quarter percent changes for EMEs.
SOURCE: Haver Analytics.
70 5
60 United Kingdom
United Kingdom 4
50
3
40
Euro area 2
30
1
20
Canada Japan +
10 0_
Euro area
0 1
42. Equity indexes for selected foreign economies spreads over German bund yields for euro-
Weekly Week ending January 8, 2016 = 100
area peripheral countries recently widened
significantly. These moves partially retraced
150 following an unscheduled meeting of the
140 European Central Bank (ECB) on June 15,
Euro area 130 where the ECB indicated that it would take
120
action to address potential fragmentation in
euro-area sovereign bond markets.
110
. . . and the dollar appreciated notably 44. U.S. dollar exchange rate indexes
Since the beginning of the year, the broad Weekly Week ending December 27, 2019 = 100
Chinese data releases. Among AFE currencies, 2014 2016 2018 2020 2022
the dollar appreciated particularly strongly NOTE: The data, which are in foreign currency units per dollar, are
weekly averages of daily values of the broad dollar index, advanced
against the Japanese yen, largely reflecting the foreign economies (AFE) dollar index, and emerging market economies
widening U.S.–Japanese yield differential. (EME) dollar index. The weekly data extend through June 10, 2022. As
indicated by the leftmost arrow, increases in the data reflect U.S. dollar
appreciation and decreases reflect U.S. dollar depreciation.
SOURCE: Federal Reserve Board, Statistical Release H.10, “Foreign
Exchange Rates.”
43
Part 2
Monetary Policy
The Federal Open Market Committee ended net asset purchases in early March and
has swiftly raised the target range for the announced its plans for significantly reducing
federal funds rate and anticipates that the size of the Federal Reserve’s balance sheet
ongoing increases in the target range will in May.13 Consistent with the Principles for
be appropriate Reducing the Size of the Federal Reserve’s
Balance Sheet that were issued in January,
With inflation far too high, well above the
the May statement outlined the Committee’s
Federal Open Market Committee’s (FOMC)
intention to reduce the Federal Reserve’s
2 percent objective, and with tight labor
securities holdings over time in a predictable
market conditions, the Committee raised
manner primarily by adjusting the amounts
the target range for the federal funds rate
reinvested of principal payments received from
off the effective lower bound in March. The
securities held in the System Open Market
Committee continued to raise the target
Account (SOMA).14 Specifically, beginning in
range in May and June, bringing it to 1½ to
June, principal payments from securities held
1¾ percent following the June meeting
in the SOMA will be reinvested to the extent
(figure 45). The Committee has also indicated
that they exceed monthly caps. For Treasury
that it anticipates that ongoing increases in the
securities, the cap is initially set at $30 billion
target range will be appropriate.
per month and after three months will increase
The Committee ceased net purchases of
Treasury securities and agency mortgage- 13. See the May 4, 2022, press release regarding the
Plans for Reducing the Size of the Federal Reserve’s
backed securities in early March and Balance Sheet, available at https://www.federalreserve.
began the process of significantly gov/newsevents/pressreleases/monetary20220504b.htm.
reducing its securities holdings on June 1 14. See the January 26, 2022, press release
regarding the Principles for Reducing the Size of the
Reflecting the need to firm the stance of Federal Reserve’s Balance Sheet, available at https://
monetary policy amid elevated inflation and www.federalreserve.gov/newsevents/pressreleases/
tight labor market conditions, the Committee monetary20220126c.htm.
Daily Percent
5
10-year Treasury rate
4
2
2-year Treasury rate
1
0
Target federal funds rate
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
NOTE: The 2-year and 10-year Treasury rates are the constant-maturity yields based on the most actively traded securities.
SOURCE: Department of the Treasury; Federal Reserve Board.
44 Part 2: Monetary Policy
to $60 billion per month. For agency debt and provide useful benchmarks for the FOMC.
agency mortgage-backed securities, the cap Although simple rules cannot capture the
is initially set at $17.5 billion per month and complexities of monetary policy and many
after three months will increase to $35 billion practical considerations make it undesirable
per month. for the FOMC to adhere strictly to the
prescriptions of any specific rule, some
Reductions in securities holdings will slow and principles of good monetary policy can
then stop when reserve balances are somewhat be illustrated by these policy rules (see the
above the level the Committee judges to be box “Monetary Policy Rules in the Current
consistent with efficient implementation of Environment”).
policy in an ample-reserves regime. Once
balance sheet runoff has ceased, reserve Changes to the policy rate were
balances will likely continue to decline implemented smoothly, and the size of
at a slower pace—reflecting growth in the Federal Reserve’s balance sheet was
other Federal Reserve liabilities—until the roughly stable
Committee judges that reserve balances are
As in the previous tightening cycle and
at the level required for implementing policy
consistent with the implementation of
efficiently in an ample regime, at which point
monetary policy in an ample-reserves regime,
reserve management purchases of securities
the Federal Reserve used its administered
would likely begin to maintain ample reserves.
rates—the interest rate on reserve balances
The Committee also noted that it is prepared
(IORB) and the offering rate at the overnight
to adjust any of the details of its approach to
reverse repurchase agreement (ON RRP)
reducing the size of the balance sheet in light
facility—to implement increases to the target
of economic and financial developments.
range for the policy rate. The administered
The FOMC will continue to monitor the rates were effective in raising the effective
implications of incoming information for federal funds rate and other short-term interest
the economic outlook rates with the Committee’s target range.
The Committee is strongly committed to The Federal Reserve’s balance sheet was
returning inflation to its 2 percent objective. In roughly stable at $9 trillion, or 36 percent
assessing the appropriate stance of monetary of U.S. nominal GDP, from February
policy, the Committee will continue to monitor through May, and the process to significantly
the implications of incoming information reduce securities holdings began on June 1
for the economic outlook. The Committee’s (figure 46).15 Reserve balances have fallen
assessments will take into account a wide from their all-time highs of a little over
range of information, including readings on $4 trillion to around $3.3 trillion because of
inflation and inflation expectations, wages, increasing take-up at the ON RRP. (See the
other measures of labor market conditions, box “Developments in the Federal Reserve’s
financial and international developments, and Balance Sheet and Money Markets.”)
public health.
15. Although balance sheet reduction started on
In addition to considering a wide range of June 1, the actual reduction in securities holdings has
economic and financial data and information been negligible thus far given the timing of principal
gathered from business contacts and other payments.
informed parties around the country, such All of the Federal Reserve’s emergency credit and
as participants in conversations held as part liquidity facilities are closed and balances have continued
to decline as facilities’ assets mature or prepay. A list of
of the Fed Listens initiative, policymakers
credit and liquidity facilities established by the Federal
routinely consult prescriptions for the policy Reserve in response to COVID-19 is available on the
interest rate provided by various monetary Board’s website at https://www.federalreserve.gov/
policy rules. These rule prescriptions can funding-credit-liquidity-and-loan-facilities.htm.
MONETARY POLICY REPORT: JUNE 2022 45
10
Other assets
8
Credit and liquidity facilities
Agency debt and mortgage-backed securities holdings 6
Treasury securities held outright 4
2
+
0
_
2
4
Federal Reserve notes in circulation 6
Deposits of depository institutions
Capital and other liabilities 8
10
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
NOTE: “Other assets” includes repurchase agreements, FIMA (Foreign and International Monetary Authorities) repurchase agreements, and unamortized
premiums and discounts on securities held outright. “Credit and liquidity facilities” consists of primary, secondary, and seasonal credit; term auction credit;
central bank liquidity swaps; support for Maiden Lane, Bear Stearns Companies, Inc., and AIG; and other credit and liquidity facilities, including the
Primary Dealer Credit Facility, the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, the Commercial Paper Funding
Facility, the Term Asset-Backed Securities Loan Facility, the Primary and Secondary Market Corporate Credit Facilities, the Paycheck Protection Program
Liquidity Facility, the Municipal Liquidity Facility, and the Main Street Lending Program. “Agency debt and mortgage-backed securities holdings” includes
agency residential mortgage-backed securities and agency commercial mortgage-backed securities. “Capital and other liabilities” includes reverse repurchase
agreements, the U.S. Treasury General Account, and the U.S. Treasury Supplementary Financing Account. The key identifies shaded areas in order from top
to bottom. The data extend through June 8, 2022.
SOURCE: Federal Reserve Board, Statistical Release H.4.1, “Factors Affecting Reserve Balances.”
46 Part 2: Monetary Policy
First-difference rule RtFD = Rt−1 + 0.5(πt − πLR) + (utLR − ut) − (utL−R4 − ut−4)
Note: RtT93, R tBA, R tBAS, R tT93adj, and R tFD represent the values of the nominal federal funds rate prescribed by the Taylor (1993),
balanced-approach, balanced-approach (shortfalls), adjusted Taylor (1993), and first-difference rules, respectively.
R t−1 denotes the midpoint of the target range for the federal funds rate for quarter t−1, πt is the 4-quarter price inflation for quarter t, u t is the
unemployment rate in quarter t, and rtLR is the level of the neutral real federal funds rate in the longer run that is expected to be consistent with
sustaining maximum employment and inflation at the Federal Open Market Committee’s 2 percent longer-run objective, represented by π LR.
In addition, u tLR is the rate of unemployment expected in the longer run. Z t is the cumulative sum of past deviations of the federal funds rate
from the prescriptions of the Taylor (1993) rule when that rule prescribes setting the federal funds rate below an effective lower bound (ELB) of
12.5 basis points.
The Taylor (1993) rule and other policy rules generally respond to the deviation of real output from its full capacity level. In these equations,
the output gap has been replaced with the gap between the rate of unemployment in the longer run and its actual level (using a relationship known
as Okun’s law) to represent the rules in terms of the unemployment rate. The rules are implemented as responding to core personal consumption
expenditures (PCE) inflation rather than to headline PCE inflation because current and near-term core inflation rates tend to outperform headline
inflation rates as predictors of the medium-term behavior of headline inflation.
estimate of the neutral real interest rate in the longer Taylor (1993) rule prescribes delaying the return of the
run (rtLR).4 policy rate to the (positive) levels prescribed by the
Unlike the other simple rules featured here, the standard Taylor (1993) rule until after the economy
adjusted Taylor (1993) rule recognizes that the federal begins to recover.
funds rate cannot be reduced materially below the
effective lower bound. To make up for the cumulative
Selected Policy Rules: Prescriptions
shortfall in policy accommodation following a
recession during which the federal funds rate is Figure B shows historical prescriptions for
constrained by its effective lower bound, the adjusted the federal funds rate under the five simple rules
considered. For each quarterly period, the figure reports
the policy rates prescribed by the rules, taking as given
4. The neutral real interest rate in the longer run (rtLR) is the prevailing economic conditions and survey-based
the level of the real federal funds rate that is expected to be
consistent, in the longer run, with maximum employment
estimates of utLR and rtLR at the time. All of the rules
and stable inflation. Like utLR, rtLR is determined largely by considered called for a highly accommodative stance
nonmonetary factors. The first-difference rule shown in for monetary policy in response to the pandemic-
figure A does not require an estimate of rtLR. However, this rule driven recession. The recent elevated inflation readings
has its own shortcomings. For example, research suggests that imply that the prescriptions for the federal funds rate of
this sort of rule often results in greater volatility in employment
and inflation relative to what would be obtained under the simple policy rules in the first quarter of 2022 are well
Taylor (1993) and balanced-approach rules. (continued on next page)
48 Part 2: Monetary Policy
Percent
First-difference rule 9
6
Balanced-approach rule
3
Taylor (1993) rule +
_0
Balanced-approach (shortfalls) rule 3
Adjusted Taylor (1993) rule
Federal funds rate 6
9
12
15
18
above their pre-pandemic levels, at between 4 percent effective lower bound on interest rates, which limits
and 7 percent. Overall, the prescriptions of all simple the extent to which the policy rate can be lowered to
rules have risen notably over the past few quarters as support the economy. This constraint was particularly
inflation readings climbed further above 2 percent. evident in the aftermath of the pandemic-driven
recession, when the lower bound on the policy rate
motivated the FOMC’s other policy actions to support
Policy Rules: Limitations
the economy. Finally, simple policy rules generally
Simple policy rules are also subject to important abstract from the risk-management considerations
limitations. One important limitation is that simple associated with uncertainty about economic
policy rules do not take into account the other tools of relationships and the evolution of the economy. As
monetary policy, such as large-scale asset purchases. a result, the usefulness of simple policy rules can be
A second important limitation is that simple rules limited in unusual economic circumstances.5
respond to only a small set of economic variables and
thus necessarily abstract from many of the factors that
5. For example, Taylor (1993) on page 197 noted that
the FOMC considers when it assesses the appropriate “there will be episodes where monetary policy will need to
setting of the policy rate. Another limitation is that be adjusted to deal with special factors. The Fed would need
most simple policy rules do not take into account the more than a simple policy rule as a guide in such cases.”
MONETARY POLICY REPORT: JUNE 2022 49
Developments in the Federal Reserve’s Balance Sheet and Money Markets (continued)
NOTE: MBS is mortgage-backed securities. The key identifies shaded areas in NOTE: “Capital and other liabilities” includes Treasury contributions. The key
order from top to bottom. The data extend through June 8, 2022. identifies shaded areas in order from top to bottom. The data extend through
SOURCE: Federal Reserve Board, Statistical Release H.4.1, “Factors Affecting June 8, 2022
Reserve Balances.” SOURCE: Federal Reserve Board, Statistical Release H.4.1, “Factors Affecting
Reserve Balances.”
In addition, uncertainty about the magnitude and pace effective at raising and maintaining the effective federal
of policy rate increases contributed to a preference funds rate within the target range during the policy rate
for short-duration assets, like those provided by the adjustments that have taken place since March.
ON RRP facility. The ON RRP facility is intended to Going forward, the planned balance sheet decline
help keep the effective federal funds rate from falling will drain reserves from the banking system and add
below the target range set by the FOMC, as institutions longer-duration assets, which will likely put upward
with access to the ON RRP should be unwilling to lend pressure on short-term rates and reduce demand at
funds below the ON RRP’s pre-announced offering rate. the ON RRP facility. The Committee will monitor the
The facility continued to serve this intended purpose, evolution of reserves and other liabilities to ensure
and the set of administered rates—interest on reserve a smooth entry into efficient operation of monetary
balances (IORB) and the ON RRP offering rate—was policy in an ample-reserves regime.
51
Part 3
Summary of Economic Projections
The following material was released after the conclusion of the June 14–15, 2022, meeting of the
Federal Open Market Committee.
In conjunction with the Federal Open Market to affect economic outcomes. The longer-
Committee (FOMC) meeting held on run projections represent each participant’s
June 14–15, 2022, meeting participants assessment of the value to which each variable
submitted their projections of the most likely would be expected to converge, over time,
outcomes for real gross domestic product under appropriate monetary policy and in the
(GDP) growth, the unemployment rate, and absence of further shocks to the economy.
inflation for each year from 2022 to 2024 “Appropriate monetary policy” is defined as
and over the longer run. Each participant’s the future path of policy that each participant
projections were based on information deems most likely to foster outcomes for
available at the time of the meeting, together economic activity and inflation that best
with her or his assessment of appropriate satisfy his or her individual interpretation of
monetary policy—including a path for the the statutory mandate to promote maximum
federal funds rate and its longer-run value— employment and price stability.
and assumptions about other factors likely
Table 1. Economic projections of Federal Reserve Board members and Federal Reserve Bank presidents, under their
individual assumptions of projected appropriate monetary policy, June 2022
Percent
Median1 Central tendency2 Range3
Variable
Longer Longer Longer
2022 2023 2024 2022 2023 2024 2022 2023 2024
run run run
Change in real GDP. . . . . 1.7 1.7 1.9 1.8 1.5–1.9 1.3–2.0 1.5–2.0 1.8–2.0 1.0–2.0 0.8–2.5 1.0–2.2 1.6–2.2
March projection . . . . . 2.8 2.2 2.0 1.8 2.5–3.0 2.1–2.5 1.8–2.0 1.8–2.0 2.1–3.3 2.0–2.9 1.5–2.5 1.6–2.2
Unemployment rate . . . . . 3.7 3.9 4.1 4.0 3.6–3.8 3.8–4.1 3.9–4.1 3.5–4.2 3.2–4.0 3.2–4.5 3.2–4.3 3.5–4.3
March projection . . . . . 3.5 3.5 3.6 4.0 3.4–3.6 3.3–3.6 3.2–3.7 3.5–4.2 3.1–4.0 3.1–4.0 3.1–4.0 3.5–4.3
PCE inflation . . . . . . . . . . 5.2 2.6 2.2 2.0 5.0–5.3 2.4–3.0 2.0–2.5 2.0 4.8–6.2 2.3–4.0 2.0–3.0 2.0
March projection . . . . . 4.3 2.7 2.3 2.0 4.1–4.7 2.3–3.0 2.1–2.4 2.0 3.7–5.5 2.2–3.5 2.0–3.0 2.0
Figure 1. Medians, central tendencies, and ranges of economic projections, 2022–24 and over the longer run
Percent
Change in real GDP 6
5
Actual 4
3
2
1
0
Median of projections −1
Central tendency of projections −2
Range of projections
−3
Note: Definitions of variables and other explanations are in the notes to table 1. The data for the actual values of the
variables are annual.
MONETARY POLICY REPORT: JUNE 2022 53
Figure 2. FOMC participants’ assessments of appropriate monetary policy: Midpoint of target range or target
level for the federal funds rate
Percent
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Note: Each shaded circle indicates the value (rounded to the nearest 1/8 percentage point) of an individual participant’s
judgment of the midpoint of the appropriate target range for the federal funds rate or the appropriate target level for the
federal funds rate at the end of the specified calendar year or over the longer run. One participant did not submit
longer-run projections for the federal funds rate.
54 Part 3: Summary of Economic Projections
Figure 3.A. Distribution of participants’ projections for the change in real GDP, 2022–24 and over the longer run
Number of participants
2022
June projections 18
March projections 16
14
12
10
8
6
4
2
0.6− 0.8− 1.0− 1.2− 1.4− 1.6− 1.8− 2.0− 2.2− 2.4− 2.6− 2.8− 3.0− 3.2−
0.7 0.9 1.1 1.3 1.5 1.7 1.9 2.1 2.3 2.5 2.7 2.9 3.1 3.3
Percent range
Number of participants
2023
18
16
14
12
10
8
6
4
2
0.6− 0.8− 1.0− 1.2− 1.4− 1.6− 1.8− 2.0− 2.2− 2.4− 2.6− 2.8− 3.0− 3.2−
0.7 0.9 1.1 1.3 1.5 1.7 1.9 2.1 2.3 2.5 2.7 2.9 3.1 3.3
Percent range
Number of participants
2024
18
16
14
12
10
8
6
4
2
0.6− 0.8− 1.0− 1.2− 1.4− 1.6− 1.8− 2.0− 2.2− 2.4− 2.6− 2.8− 3.0− 3.2−
0.7 0.9 1.1 1.3 1.5 1.7 1.9 2.1 2.3 2.5 2.7 2.9 3.1 3.3
Percent range
Number of participants
Longer run
18
16
14
12
10
8
6
4
2
0.6− 0.8− 1.0− 1.2− 1.4− 1.6− 1.8− 2.0− 2.2− 2.4− 2.6− 2.8− 3.0− 3.2−
0.7 0.9 1.1 1.3 1.5 1.7 1.9 2.1 2.3 2.5 2.7 2.9 3.1 3.3
Percent range
Note: Definitions of variables and other explanations are in the notes to table 1.
MONETARY POLICY REPORT: JUNE 2022 55
Figure 3.B. Distribution of participants’ projections for the unemployment rate, 2022–24 and over the longer run
Number of participants
2022
June projections 18
March projections 16
14
12
10
8
6
4
2
Number of participants
2023
18
16
14
12
10
8
6
4
2
Number of participants
2024
18
16
14
12
10
8
6
4
2
Number of participants
Longer run
18
16
14
12
10
8
6
4
2
Note: Definitions of variables and other explanations are in the notes to table 1.
56 Part 3: Summary of Economic Projections
Figure 3.C. Distribution of participants’ projections for PCE inflation, 2022–24 and over the longer run
Number of participants
1.7− 1.9− 2.1− 2.3− 2.5− 2.7− 2.9− 3.1− 3.3− 3.5− 3.7− 3.9− 4.1− 4.3− 4.5− 4.7− 4.9− 5.1− 5.3− 5.5− 5.7− 5.9− 6.1−
1.8 2.0 2.2 2.4 2.6 2.8 3.0 3.2 3.4 3.6 3.8 4.0 4.2 4.4 4.6 4.8 5.0 5.2 5.4 5.6 5.8 6.0 6.2
Percent range
Number of participants
2023
18
16
14
12
10
8
6
4
2
1.7− 1.9− 2.1− 2.3− 2.5− 2.7− 2.9− 3.1− 3.3− 3.5− 3.7− 3.9− 4.1− 4.3− 4.5− 4.7− 4.9− 5.1− 5.3− 5.5− 5.7− 5.9− 6.1−
1.8 2.0 2.2 2.4 2.6 2.8 3.0 3.2 3.4 3.6 3.8 4.0 4.2 4.4 4.6 4.8 5.0 5.2 5.4 5.6 5.8 6.0 6.2
Percent range
Number of participants
2024
18
16
14
12
10
8
6
4
2
1.7− 1.9− 2.1− 2.3− 2.5− 2.7− 2.9− 3.1− 3.3− 3.5− 3.7− 3.9− 4.1− 4.3− 4.5− 4.7− 4.9− 5.1− 5.3− 5.5− 5.7− 5.9− 6.1−
1.8 2.0 2.2 2.4 2.6 2.8 3.0 3.2 3.4 3.6 3.8 4.0 4.2 4.4 4.6 4.8 5.0 5.2 5.4 5.6 5.8 6.0 6.2
Percent range
Number of participants
Longer run
18
16
14
12
10
8
6
4
2
1.7− 1.9− 2.1− 2.3− 2.5− 2.7− 2.9− 3.1− 3.3− 3.5− 3.7− 3.9− 4.1− 4.3− 4.5− 4.7− 4.9− 5.1− 5.3− 5.5− 5.7− 5.9− 6.1−
1.8 2.0 2.2 2.4 2.6 2.8 3.0 3.2 3.4 3.6 3.8 4.0 4.2 4.4 4.6 4.8 5.0 5.2 5.4 5.6 5.8 6.0 6.2
Percent range
Note: Definitions of variables and other explanations are in the notes to table 1.
MONETARY POLICY REPORT: JUNE 2022 57
Figure 3.D. Distribution of participants’ projections for core PCE inflation, 2022–24
Number of participants
1.7− 1.9− 2.1− 2.3− 2.5− 2.7− 2.9− 3.1− 3.3− 3.5− 3.7− 3.9− 4.1− 4.3− 4.5− 4.7− 4.9−
1.8 2.0 2.2 2.4 2.6 2.8 3.0 3.2 3.4 3.6 3.8 4.0 4.2 4.4 4.6 4.8 5.0
Percent range
Number of participants
2023
18
16
14
12
10
8
6
4
2
1.7− 1.9− 2.1− 2.3− 2.5− 2.7− 2.9− 3.1− 3.3− 3.5− 3.7− 3.9− 4.1− 4.3− 4.5− 4.7− 4.9−
1.8 2.0 2.2 2.4 2.6 2.8 3.0 3.2 3.4 3.6 3.8 4.0 4.2 4.4 4.6 4.8 5.0
Percent range
Number of participants
2024
18
16
14
12
10
8
6
4
2
1.7− 1.9− 2.1− 2.3− 2.5− 2.7− 2.9− 3.1− 3.3− 3.5− 3.7− 3.9− 4.1− 4.3− 4.5− 4.7− 4.9−
1.8 2.0 2.2 2.4 2.6 2.8 3.0 3.2 3.4 3.6 3.8 4.0 4.2 4.4 4.6 4.8 5.0
Percent range
Note: Definitions of variables and other explanations are in the notes to table 1.
58 Part 3: Summary of Economic Projections
Figure 3.E. Distribution of participants’ judgments of the midpoint of the appropriate target range for the
federal funds rate or the appropriate target level for the federal funds rate, 2022–24 and over the longer run
Number of participants
1.38− 1.63− 1.88− 2.13− 2.38− 2.63− 2.88− 3.13− 3.38− 3.63− 3.88− 4.13− 4.38−
1.62 1.87 2.12 2.37 2.62 2.87 3.12 3.37 3.62 3.87 4.12 4.37 4.62
Percent range
Number of participants
2023
18
16
14
12
10
8
6
4
2
1.38− 1.63− 1.88− 2.13− 2.38− 2.63− 2.88− 3.13− 3.38− 3.63− 3.88− 4.13− 4.38−
1.62 1.87 2.12 2.37 2.62 2.87 3.12 3.37 3.62 3.87 4.12 4.37 4.62
Percent range
Number of participants
2024
18
16
14
12
10
8
6
4
2
1.38− 1.63− 1.88− 2.13− 2.38− 2.63− 2.88− 3.13− 3.38− 3.63− 3.88− 4.13− 4.38−
1.62 1.87 2.12 2.37 2.62 2.87 3.12 3.37 3.62 3.87 4.12 4.37 4.62
Percent range
Number of participants
Longer run
18
16
14
12
10
8
6
4
2
1.38− 1.63− 1.88− 2.13− 2.38− 2.63− 2.88− 3.13− 3.38− 3.63− 3.88− 4.13− 4.38−
1.62 1.87 2.12 2.37 2.62 2.87 3.12 3.37 3.62 3.87 4.12 4.37 4.62
Percent range
Note: Definitions of variables and other explanations are in the notes to table 1.
MONETARY POLICY REPORT: JUNE 2022 59
2
Actual
1
−1
−2
−3
FOMC participants’ assessments of uncertainty and risks around their economic projections
Number of participants Number of participants
Note: The blue and red lines in the top panel show actual values and median projected values, respectively, of the
percent change in real gross domestic product (GDP) from the fourth quarter of the previous year to the fourth quarter of
the year indicated. The confidence interval around the median projected values is assumed to be symmetric and is based on
root mean squared errors of various private and government forecasts made over the previous 20 years; more information
about these data is available in table 2. Because current conditions may differ from those that prevailed, on average, over
the previous 20 years, the width and shape of the confidence interval estimated on the basis of the historical forecast errors
may not reflect FOMC participants’ current assessments of the uncertainty and risks around their projections; these
current assessments are summarized in the lower panels. Generally speaking, participants who judge the uncertainty about
their projections as “broadly similar” to the average levels of the past 20 years would view the width of the confidence
interval shown in the historical fan chart as largely consistent with their assessments of the uncertainty about their
projections. Likewise, participants who judge the risks to their projections as “broadly balanced” would view the
confidence interval around their projections as approximately symmetric. For definitions of uncertainty and risks in
economic projections, see the box “Forecast Uncertainty.”
60 Part 3: Summary of Economic Projections
Actual 5
FOMC participants’ assessments of uncertainty and risks around their economic projections
Number of participants Number of participants
Note: The blue and red lines in the top panel show actual values and median projected values, respectively, of the
average civilian unemployment rate in the fourth quarter of the year indicated. The confidence interval around the median
projected values is assumed to be symmetric and is based on root mean squared errors of various private and government
forecasts made over the previous 20 years; more information about these data is available in table 2. Because current
conditions may differ from those that prevailed, on average, over the previous 20 years, the width and shape of the
confidence interval estimated on the basis of the historical forecast errors may not reflect FOMC participants’ current
assessments of the uncertainty and risks around their projections; these current assessments are summarized in the lower
panels. Generally speaking, participants who judge the uncertainty about their projections as “broadly similar” to the
average levels of the past 20 years would view the width of the confidence interval shown in the historical fan chart as
largely consistent with their assessments of the uncertainty about their projections. Likewise, participants who judge the
risks to their projections as “broadly balanced” would view the confidence interval around their projections as approxi-
mately symmetric. For definitions of uncertainty and risks in economic projections, see the box “Forecast Uncertainty.”
MONETARY POLICY REPORT: JUNE 2022 61
3
Actual
2
FOMC participants’ assessments of uncertainty and risks around their economic projections
Number of participants Number of participants
Note: The blue and red lines in the top panel show actual values and median projected values, respectively, of the
percent change in the price index for personal consumption expenditures (PCE) from the fourth quarter of the previous
year to the fourth quarter of the year indicated. The confidence interval around the median projected values is assumed to
be symmetric and is based on root mean squared errors of various private and government forecasts made over the
previous 20 years; more information about these data is available in table 2. Because current conditions may differ from
those that prevailed, on average, over the previous 20 years, the width and shape of the confidence interval estimated on
the basis of the historical forecast errors may not reflect FOMC participants’ current assessments of the uncertainty and
risks around their projections; these current assessments are summarized in the lower panels. Generally speaking,
participants who judge the uncertainty about their projections as “broadly similar” to the average levels of the past 20
years would view the width of the confidence interval shown in the historical fan chart as largely consistent with their
assessments of the uncertainty about their projections. Likewise, participants who judge the risks to their projections as
“broadly balanced” would view the confidence interval around their projections as approximately symmetric. For
definitions of uncertainty and risks in economic projections, see the box “Forecast Uncertainty.”
62 Part 3: Summary of Economic Projections
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Diffusion index
Unemployment rate
1.00
0.75
0.50
0.25
0.00
−0.25
−0.50
−0.75
−1.00
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Diffusion index
PCE inflation
1.00
0.75
0.50
0.25
0.00
−0.25
−0.50
−0.75
−1.00
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Diffusion index
Core PCE inflation
1.00
0.75
0.50
0.25
0.00
−0.25
−0.50
−0.75
−1.00
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Note: For each SEP, participants provided responses to the question “Please indicate your judgment of the uncertainty
attached to your projections relative to the levels of uncertainty over the past 20 years.” Each point in the diffusion indexes
represents the number of participants who responded “Higher” minus the number who responded “Lower,” divided by the
total number of participants. Figure excludes March 2020 when no projections were submitted.
MONETARY POLICY REPORT: JUNE 2022 63
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Diffusion index
Unemployment rate
1.00
0.75
0.50
0.25
0.00
−0.25
−0.50
−0.75
−1.00
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Diffusion index
PCE inflation
1.00
0.75
0.50
0.25
0.00
−0.25
−0.50
−0.75
−1.00
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Diffusion index
Core PCE inflation
1.00
0.75
0.50
0.25
0.00
−0.25
−0.50
−0.75
−1.00
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Note: For each SEP, participants provided responses to the question “Please indicate your judgment of the risk
weighting around your projections.” Each point in the diffusion indexes represents the number of participants who
responded “Weighted to the Upside” minus the number who responded “Weighted to the Downside,” divided by the total
number of participants. Figure excludes March 2020 when no projections were submitted.
64 Part 3: Summary of Economic Projections
Percent
Federal funds rate
Midpoint of target range 6
Median of projections
70% confidence interval*
5
Actual
2
Note: The blue and red lines are based on actual values and median projected values, respectively, of the Committee’s
target for the federal funds rate at the end of the year indicated. The actual values are the midpoint of the target range; the
median projected values are based on either the midpoint of the target range or the target level. The confidence interval
around the median projected values is based on root mean squared errors of various private and government forecasts
made over the previous 20 years. The confidence interval is not strictly consistent with the projections for the federal funds
rate, primarily because these projections are not forecasts of the likeliest outcomes for the federal funds rate, but rather
projections of participants’ individual assessments of appropriate monetary policy. Still, historical forecast errors provide
a broad sense of the uncertainty around the future path of the federal funds rate generated by the uncertainty about the
macroeconomic variables as well as additional adjustments to monetary policy that may be appropriate to offset the effects
of shocks to the economy.
The confidence interval is assumed to be symmetric except when it is truncated at zero - the bottom of the lowest target
range for the federal funds rate that has been adopted in the past by the Committee. This truncation would not be intended
to indicate the likelihood of the use of negative interest rates to provide additional monetary policy accommodation if
doing so was judged appropriate. In such situations, the Committee could also employ other tools, including forward
guidance and large-scale asset purchases, to provide additional accommodation. Because current conditions may differ
from those that prevailed, on average, over the previous 20 years, the width and shape of the confidence interval estimated
on the basis of the historical forecast errors may not reflect FOMC participants’ current assessments of the uncertainty and
risks around their projections.
* The confidence interval is derived from forecasts of the average level of short-term interest rates in the fourth quarter
of the year indicated; more information about these data is available in table 2. The shaded area encompasses less than a
70 percent confidence interval if the confidence interval has been truncated at zero.
MONETARY POLICY REPORT: JUNE 2022 65
Forecast Uncertainty
The economic projections provided by the members reported in table 2 would imply a probability of about
of the Board of Governors and the presidents of 70 percent that actual GDP would expand within a
the Federal Reserve Banks inform discussions of range of 1.5 to 4.5 percent in the current year, 1.1 to
monetary policy among policymakers and can aid 4.9 percent in the second year, and 0.7 to 5.3 percent
public understanding of the basis for policy actions. in the third year. The corresponding 70 percent
Considerable uncertainty attends these projections, confidence intervals for overall inflation would be 1.0
however. The economic and statistical models and to 3.0 percent in the current year, 0.7 to 3.3 percent
relationships used to help produce economic forecasts in the second year, and 0.6 to 3.4 percent in the third
are necessarily imperfect descriptions of the real world, year. Figures 4.A through 4.C illustrate these confidence
and the future path of the economy can be affected bounds in “fan charts” that are symmetric and centered
by myriad unforeseen developments and events. Thus, on the medians of FOMC participants’ projections for
in setting the stance of monetary policy, participants GDP growth, the unemployment rate, and inflation.
consider not only what appears to be the most likely However, in some instances, the risks around the
economic outcome as embodied in their projections, projections may not be symmetric. In particular, the
but also the range of alternative possibilities, the unemployment rate cannot be negative; furthermore,
likelihood of their occurring, and the potential costs to the risks around a particular projection might be tilted
the economy should they occur. to either the upside or the downside, in which case
Table 2 summarizes the average historical accuracy the corresponding fan chart would be asymmetrically
of a range of forecasts, including those reported in positioned around the median projection.
past Monetary Policy Reports and those prepared Because current conditions may differ from those
by the Federal Reserve Board’s staff in advance of that prevailed, on average, over history, participants
meetings of the Federal Open Market Committee provide judgments as to whether the uncertainty
(FOMC). The projection error ranges shown in the attached to their projections of each economic variable
table illustrate the considerable uncertainty associated is greater than, smaller than, or broadly similar to
with economic forecasts. For example, suppose a typical levels of forecast uncertainty seen in the past
participant projects that real gross domestic product 20 years, as presented in table 2 and reflected in the
(GDP) and total consumer prices will rise steadily at widths of the confidence intervals shown in the top
annual rates of, respectively, 3 percent and 2 percent. panels of figures 4.A through 4.C. Participants’ current
If the uncertainty attending those projections is similar assessments of the uncertainty surrounding their
to that experienced in the past and the risks around projections are summarized in the bottom-left panels
the projections are broadly balanced, the numbers (continued)
MONETARY POLICY REPORT: JUNE 2022 67
of those figures. Participants also provide judgments as on an end-of-year basis. However, the forecast errors
to whether the risks to their projections are weighted should provide a sense of the uncertainty around the
to the upside, are weighted to the downside, or future path of the federal funds rate generated by the
are broadly balanced. That is, while the symmetric uncertainty about the macroeconomic variables as
historical fan charts shown in the top panels of figures well as additional adjustments to monetary policy that
4.A through 4.C imply that the risks to participants’ would be appropriate to offset the effects of shocks to
projections are balanced, participants may judge that the economy.
there is a greater risk that a given variable will be above If at some point in the future the confidence interval
rather than below their projections. These judgments around the federal funds rate were to extend below
are summarized in the lower-right panels of figures 4.A zero, it would be truncated at zero for purposes of
through 4.C. the fan chart shown in figure 5; zero is the bottom of
As with real activity and inflation, the outlook the lowest target range for the federal funds rate that
for the future path of the federal funds rate is subject has been adopted by the Committee in the past. This
to considerable uncertainty. This uncertainty arises approach to the construction of the federal funds rate
primarily because each participant’s assessment of fan chart would be merely a convention; it would
the appropriate stance of monetary policy depends not have any implications for possible future policy
importantly on the evolution of real activity and decisions regarding the use of negative interest rates to
inflation over time. If economic conditions evolve provide additional monetary policy accommodation
in an unexpected manner, then assessments of the if doing so were appropriate. In such situations, the
appropriate setting of the federal funds rate would Committee could also employ other tools, including
change from that point forward. The final line in forward guidance and asset purchases, to provide
table 2 shows the error ranges for forecasts of short- additional accommodation.
term interest rates. They suggest that the historical While figures 4.A through 4.C provide information
confidence intervals associated with projections on the uncertainty around the economic projections,
of the federal funds rate are quite wide. It should figure 1 provides information on the range of views
be noted, however, that these confidence intervals across FOMC participants. A comparison of figure 1
are not strictly consistent with the projections for with figures 4.A through 4.C shows that the dispersion
the federal funds rate, as these projections are not of the projections across participants is much smaller
forecasts of the most likely quarterly outcomes but than the average forecast errors over the past 20 years.
rather are projections of participants’ individual
assessments of appropriate monetary policy and are
69
Abbreviations
AFE advanced foreign economy
BOC Bank of Canada
BOE Bank of England
BOJ Bank of Japan
CCP central counterparty
COVID-19 coronavirus disease 2019
CPI consumer price index
ECB European Central Bank
ECI employment cost index
EME emerging market economy
EPOP ratio employment-to-population ratio
FOMC Federal Open Market Committee; also, the Committee
GDP gross domestic product
IORB interest rate on reserve balances
LFPR labor force participation rate
MBS mortgage-backed securities
MMF money market fund
ON RRP overnight reverse repurchase agreement
PCE personal consumption expenditures
repo repurchase agreement
SOMA System Open Market Account
S&P Standard & Poor’s
TGA Treasury General Account
USD U.S. dollar
VIX implied volatility for the S&P 500 index
For use at 11:00 a.m. EDT
June 17, 2022