Fed Monetary Policy Report June

For use at 11:00 a.m.
EDT
June 17, 2022
Monetary Policy rePort

June 17, 2022
Board of Governors of the Federal Reserve System

Letter of Transmittal
Board of Governors of the

Federal Reserve System
Washington, D.C., June 17, 2022
The President of the Senate

The Speaker of the House of Representatives
The Board of Governors is pleased to submit its Monetary Policy Report pursuant to
section 2B of the Federal Reserve Act.
Sincerely,
Jerome H. Powell, Chair

Statement on Longer-Run Goals and Monetary Policy Strategy
Adopted effective January 24, 2012; as reaffirmed effective January 25, 2022
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
Part 1: Recent Economic and Financial Developments . . . . . . . . . . . . . . . . . . . . . . 5

Domestic Developments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Financial Developments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
International Developments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Part 2: Monetary Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Part 3: Summary of Economic Projections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

Abbreviations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
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.
The PCE price index for energy increased

30 percent over the 12 months ending in April,
2. Personal consumption expenditures price indexes
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
100 . . . which, in turn, partly reflected rising

80
prices of commodities and imports
60 Because of Russia’s invasion of Ukraine, oil
24-month-ahead
futures contracts 40 prices rose sharply in early March, reaching
20
eight-year highs (figure 3). Prices remain
elevated and volatile, boosted by a European
2007 2010 2013 2016 2019 2022 Union embargo of Russian oil imports
NOTE: The data are weekly averages of daily data and extend through but weighed down at times by concerns
June 10, 2022.
SOURCE: ICE Brent Futures via Bloomberg. about global economic growth. In addition,
producers in other countries are struggling to
ramp up oil production.
4. Spot prices for commodities
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
Excluding food and energy prices,

8
monthly inflation readings have softened
6 since the turn of the year but remain
4 far above levels consistent with price
2
stability
+
0
_
Supply chain issues, hiring difficulties, and
2
other capacity constraints have prevented
the supply of products from rising quickly
4
enough to satisfy continued strong demand,
2014 2015 2016 2017 2018 2019 2020 2021 2022
resulting in large price increases for many
NOTE: The data extend through April 2022.
goods and services over the past year. After
SOURCE: Bureau of Labor Statistics via Haver Analytics. excluding consumer food and energy prices,
the 12-month measure of core PCE inflation

rose initially and then fell back to 4.9 percent
in April, unchanged from December.
That said, monthly core inflation readings

have softened noticeably since the start of the
year, with the three-month measure of core
PCE inflation falling from an annual rate of
6.0 percent last December to 4.0 percent in
April. In particular, inflation stepped down for
durable goods, likely reflecting some easing in
supply constraints.
Nevertheless, the recent inflation readings have

been mixed, remain far above levels consistent
with price stability, and are far from conclusive
evidence on the direction of inflation. Unlike
durable goods price inflation, core services
inflation has not declined significantly.
Housing service prices continue to rise at a
brisk pace, and increased demand for travel is
markedly pushing up inflation rates for lodging
and airfares. More generally, rapid growth of
labor costs is putting upward pressure on the
prices of all labor-intensive services.
6. Measures of inflation expectations
Measures of near-term inflation
expectations continued to rise markedly, Percent
while longer-term expectations moved up 5.5

by less Michigan survey,
next 12 months 5.0
4.5
The first half of 2022 saw further increases in CIE, projected onto
Michigan, next 5 to 10 years 4.0
expectations of inflation for the year ahead in
3.5
surveys of both consumers and professional
3.0
forecasters (figure 6). In the University of 2.5
Michigan Surveys of Consumers, the median 2.0
value for inflation expectations over the SPF, 10 years ahead 1.5
CIE, projected onto
next year jumped to 5.4 percent in March, 10-year SPF Michigan survey,
next 5 to 10 years 1.0
its highest level since November 1981, and
2006 2008 2010 2012 2014 2016 2018 2020 2022
has moved sideways since then. A portion
NOTE: The Survey of Professional Forecasters (SPF) data are
of the upward movement so far this year quarterly, begin in 2007:Q1, and extend through 2022:Q2. The data for
likely reflects the war in Ukraine and the the Index of Common Inflation Expectations (CIE) and the Michigan
survey are monthly and extend through June 2022; the June data for the
accompanying increases in the prices of Michigan survey and the CIE are preliminary.
SOURCE: University of Michigan Surveys of Consumers; Federal
commodities, especially those related to energy Reserve Bank of Philadelphia, SPF; Federal Reserve Board, CIE;
and food. Federal Reserve Board staff calculations.
Longer-term expectations, which are more

likely to influence actual inflation over time,
moved up by less and remained above pre-
pandemic levels. The Michigan survey’s
median inflation expectation for the next
Developments in Global Supply Chains

Bottlenecks in global production and transportation mixed for bottlenecks in the transportation of goods.
remain a major impediment for both domestic and The number of ships waiting for berths at West Coast
foreign firms. Russia’s invasion of Ukraine and the ports has declined noticeably, as port throughput has
widespread COvID-19 lockdowns in China have remained high, although manufacturers continue to cite
exacerbated strains in global supply networks and logistics and transportation constraints as reasons for
have led to greater uncertainty about the timing of lower output.
improvement in supply conditions. (continued)
Despite this turbulence in the global supply
network, U.S. manufacturers have been recording
solid output growth for more than a year. There have
B. Suppliers’ delivery times and order backlogs
been gains in domestic motor vehicle production,
as the supply of semiconductors has recovered Monthly Diffusion index
somewhat (figure A). In addition, survey results
suggest shorter supplier delivery times and lower order 80
Delivery
backlogs relative to their late 2021 levels (figure B). times 70
Notwithstanding these improvements, backlogs and
delivery times for the sector remain elevated, and light 60
vehicle assemblies are still a bit below pre-pandemic 50
levels, with low dealer inventories continuing to
constrain sales. For some materials that had previously 40
Order backlogs
been in short supply—such as lumber and steel— 30
prices have declined from notable highs. Even so,
the overall producer price index for manufacturing 20
in April was more than 18 percent above its year-

2007 2012 2017 2022
earlier level (figure C). Progress has been similarly
NOTE: Values greater than 50 indicate that more respondents reported
longer delivery times or order backlogs relative to a month earlier than
reported shorter delivery times or order backlogs.
SOURCE: Institute for Supply Management, ISM Manufacturing Report
on Business.
A. U.S. light motor vehicle production
Monthly January 2020 = 100
110 C. Producer price index for manufacturing
Monthly Percent change from year earlier

100
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.
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
2019 2020 2021 2022
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
Monthly Percent change Monthly Percent change
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.
Developments in Global Supply Chains (continued)
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.
5 to 10 years rose to 3.3 percent in the June

preliminary reading. If confirmed, this reading
would be near the top of the range from the
past 25 years. Nevertheless, it remains well
below the corresponding measure of 1-year-
ahead inflation expectations. In the second-
quarter Survey of Professional Forecasters, the
median expectation for 10-year PCE inflation
edged up to 2.4 percent, reflecting noticeable
upward revisions to expected inflation this
year and next but little change thereafter; the
median expectation for 6 to 10 years ahead
held steady at 2 percent.
Market-based measures of longer-term

inflation compensation, which are based
on financial instruments linked to inflation, 7. Inflation compensation implied by Treasury
are sending a similar message. A measure Inflation-Protected Securities
of consumer price index (CPI) inflation Daily Percent
compensation 5 to 10 years ahead implied
4.0
by Treasury Inflation-Protected Securities is
3.5
little changed (on balance) since late 2021 and
5-to-10-year 3.0
remains well below the corresponding measure
2.5
of inflation compensation over the next 5 years
2.0
(figure 7).
1.5
5-year
The Index of Common Inflation Expectations, 1.0
which is produced by Federal Reserve Board .5
staff and synthesizes information from a large 0
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.
The labor market continued to tighten

8. Nonfarm payroll employment
Payroll employment expanded an average of
Monthly Millions of jobs
488,000 per month in the first five months of
the year (figure 8). Payroll gains so far this year 155
have been broad based across industries, with
150
the leisure and hospitality sector continuing to
see the largest gains as people continued their 145
return to activities that had been cut back by 140

the pandemic. 135
The increase in payrolls was accompanied 130
by further declines in the unemployment 125

rate, which fell 0.3 percentage point over the
first five months of the year to 3.6 percent 2006 2008 2010 2012 2014 2016 2018 2020 2022
in May, just above the bottom of its range SOURCE: Bureau of Labor Statistics via Haver Analytics.
9. Civilian unemployment rate over the past 50 years (figure 9). The

Monthly Percent
decline in the unemployment rate has been
fairly broad based across age, educational
16 attainment, gender, and ethnic and racial
14 groups (figure 10). These declines have
12
helped employment of nearly all major
10
demographic groups recover to near or above
their levels before the pandemic. (See the box
8
“Developments in Employment and Earnings
6
across Groups.”)
4
2 While labor demand remained very

strong, labor supply increased only
2006 2008 2010 2012 2014 2016 2018 2020 2022
modestly and stayed below
SOURCE: Bureau of Labor Statistics via Haver Analytics.
pre-pandemic levels
Demand for labor continued to be very
strong in the first half of the year. At the
end of April, there were 11.4 million job
openings—60 percent above pre-pandemic
levels and down a bit from the all-time high
recorded in March.
Meanwhile, the supply of labor rose only

gradually and remained below pre-pandemic
levels. The labor force participation rate
(LFPR), which measures the share of people
10. Unemployment rate, by race and ethnicity
Monthly Percent
20
18
Black or African American
16
14
12
Hispanic or Latino
10
White 8
6
Asian
4
2006 2008 2010 2012 2014 2016 2018 2020 2022

NOTE: Unemployment rate measures total unemployed as a percentage of the labor force. Persons whose ethnicity is identified as Hispanic or Latino
may be of any race. Small sample sizes preclude reliable estimates for Native Americans and other groups for which monthly data are not reported by
the Bureau of Labor Statistics.
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.
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.
In addition to subdued participation, a second

factor constraining the size of the labor force
has been a marked slowing in population
growth since the start of the pandemic. Over
2020 and 2021, the working-age (16 and over)
population grew by 0.4 percent per year on
average—notably less than the 0.9 percent
2. The Bureau of Labor Statistics incorporated new

population estimates beginning with the January 2022
employment report. This development resulted in a
one-time jump in the estimate of the aggregate LFPR
of about 0.3 percentage point due to a change in the
age distribution of the population. Accordingly, the
0.4 percentage point increase in the published measure
from December to May overstates the improvement in
the LFPR by about 0.3 percentage point.
3. This shortfall in the LFPR corresponds to
a shortfall in the labor force of about 2.8 million
persons. (This calculation holds the LFPR constant
at its February 2020 level and assumes population
growth equal to the actual growth observed since
February 2020.)
Developments in Employment and Earnings across Groups

Labor market gains have been robust over the Employment for Blacks and Hispanics not only
past year and a half as the economy continues to declined by more than that for whites and Asians
recover from the effects of the pandemic. Historically, early in the pandemic, but also recovered more
economic downturns have tended to exacerbate quickly since the end of last year (figure A, upper-
long-standing differences in employment and earnings right panel). In addition, men and women with high
across demographic groups, especially for minorities school degrees or less saw larger declines and a faster
and for those with less education, and this pattern was recovery (figure A, lower-left panel). Similarly, gaps in
especially true early on in the pandemic. However, employment between prime-age mothers and non-
as pandemic-related factors have eased and the labor mothers that widened through 2020 have essentially
market has recovered, groups with larger employment closed (figure A, lower-right panel). By April 2022,
declines early in the pandemic have had especially employment for all of those groups was near or above
large increases lately. Now employment and real its pre-pandemic level.
earnings of nearly all major demographic groups are These differences in the timing of the employment
near or above their levels before the pandemic, and recovery across different demographic groups partly
employment rates are again near multidecade highs. reflect the evolution of the pandemic’s effect on the
Different age groups have had very different labor market. For instance, social-distancing restrictions
employment experiences over the course of the and concerns about contracting or spreading
pandemic.1 Early in the pandemic, the employment-to- COvID-19 had likely inhibited employment in in-
population (EPOP) ratio for people aged 16 to 24 not person services. As these restrictions and concerns
only declined by much more than that for people of have waned, employment of groups more commonly
prime age (25 to 54) and those aged 55 to 64, but also employed in in-person services, such as those with less
recovered much more quickly (see figure A, upper- education and some minority groups, has recovered
left panel).2 Conversely, employment recovered more quickly.3 Further, the closing of many schools and
slowly for prime-age people throughout 2020 and childcare facilities for the 2020–21 school year due
nearly all of 2021. But in late 2021 and early 2022, to elevated levels of COvID cases likely held back
the prime-age EPOP rose quickly, such that now all the employment recovery of parents, as many families
three of these age groups’ EPOP ratios have essentially faced uncertainties about the consistent availability
recovered to their pre-pandemic levels. The EPOP ratio of in-person education for school-age children and
for those aged 65 and over, however, remains about childcare for younger children. The effects appear to
1 percentage point below its pre-pandemic level—a have been particularly acute for mothers, especially
level it has maintained through much of the pandemic. Black and Hispanic mothers, as well as those with less
The lower EPOP ratio for that group is entirely (continued)
attributable to a lower labor force participation rate,
which in turn largely reflects an increase in retirements
since the onset of the pandemic. 3. Before the pandemic, Blacks and Hispanics were
A closer look at the prime-age group shows that less likely to be employed in jobs that could be performed
there has been considerable heterogeneity in the pace remotely, and women and Blacks were more likely to be
employed in occupations that involved greater face-to-face
of the employment recovery across race and ethnicity,
interactions; for example, see Laura Montenovo, Xuan Jiang,
educational attainment, and parental status. Felipe Lozano Rojas, Ian M. Schmutte, Kosali I. Simon,
Bruce A. Weinberg, and Coady Wing (2020), “Determinants
of Disparities in COvID-19 Job Losses,” NBER Working
Paper Series 27132 (Cambridge, Mass.: National Bureau of
1. The January 2022 employment report incorporates Economic Research, May; revised June 2021), https://www.
population controls that showed that the working-age nber.org/system/files/working_papers/w27132/w27132.pdf.
population was both larger and younger over the past Other research shows that even after accounting for
decade than the Census Bureau had previously estimated. workers’ job characteristics, Hispanic and nonwhite workers
Those population controls had meaningful effects on the experienced a higher rate of job loss relative to other
aggregate EPOP ratio, but much smaller effects at the levels of workers; see Guido Matias Cortes and Eliza Forsythe (2021),
disaggregation examined in this discussion. “The Heterogeneous Labor Market Impacts of the Covid-19
2. This discussion defines the pre-pandemic baseline Pandemic,” unpublished paper, August, http://publish.illinois.
EPOP ratio for each group as that group’s average EPOP ratio edu/elizaforsythe/files/2021/08/Cortes_Forsythe_Covid-demo_
over 2019. revision_8_1_2021.pdf.
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
Age group Race and ethnicity: Prime age
Monthly Percentage points Monthly Percentage points
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
2019 2020 2021 2022 2019 2020 2021 2022
Educational attainment: Prime age Parental status: Prime-age women
Monthly Percentage points Monthly Percentage points
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
2019 2020 2021 2022 2019 2020 2021 2022

NOTE: Prime age is 25 to 54. The age groups 16 to 24 and prime age show seasonally adjusted data published by the Bureau of Labor Statistics, whereas
all other groups’ data are seasonally adjusted by the Federal Reserve Board staff.
SOURCE: Bureau of Labor Statistics; Federal Reserve Board staff calculations from Current Population Survey microdata.
Developments in Employment and Earnings across Groups (continued)

Although the gaps in employment outcomes time real earnings for women versus men is slightly
across groups that widened during the pandemic have smaller in 2022:Q1 than it was in 2019, as is the gap
diminished, the considerable gaps that existed before in median real earnings between Black and white full-
the pandemic remain. For example, the EPOP ratio for time workers.6
whites of prime age remains more than 3 percentage
points above those for prime-age Black and Hispanic
B. Growth in median full-time usual weekly earnings
people; the EPOP ratio of college-educated, prime-age from 2019 to 2022:Q1
people is about 15 percentage points higher than that
of prime-age people with high school degrees or less;
and the EPOP ratio for prime-age mothers is about Real (PCE) Nominal
5 percentage points below that of non-mothers—all Overall
similar in size to the gaps that existed before the Men

Women
pandemic. Less than high school
High school
The broad-based nature of the labor market recovery Some college
Bachelor’s or more
is also apparent in workers’ earnings, which have
16–24
grown rapidly as employment surged in 2021 and early 25–54
55–64
2022. As of 2022:Q1, the median full-time worker’s 65+
usual weekly earnings had grown 12.3 percent relative White
Black or African American
to pre-pandemic levels—implying real earnings growth Asian
Hispanic or Latino
of 3.1 percent (figure B).5 Although this earnings growth
has been widespread, it has been largest for women, 0 2 4 6 8 10 12 14 16
Percent change relative to 2019 average
minorities, young workers, and workers with less than a
NOTE: The percent change as of 2022:Q1 is relative to the 2019 average of
high school education. The growth in earnings for some the median usual weekly earnings for full-time workers in each group. Real
demographic groups has been sufficiently robust to earnings growth deflates the nominal earnings growth by the average growth in
the personal consumption expenditures (PCE) price index as of 2022:Q1
shrink some pre-pandemic disparities in real earnings relative to its 2019 average level. The overall earnings, as well as those for men
between groups. For instance, the gap in median full- and women, use seasonally adjusted data, but the other groups’ earnings are
not seasonally adjusted. The key identifies bars in order from left to right.
SOURCE: For median usual weekly earnings, Bureau of Labor Statistics; for
the PCE price index, Bureau of Economic Analysis.
5. Just as with the change in the EPOP ratio, each group’s

pre-pandemic baseline is defined as the group’s average
median usual weekly earnings in 2019. The reported growth in 6. Some of a group’s earnings growth relative to 2019 may
real usual weekly earnings deflates nominal earnings growth reflect lingering pandemic-related compositional shifts in the
by total PCE (personal consumption expenditures) inflation. group’s full-time workers. Additionally, real earnings growth
If, instead, the CPI were used to deflate nominal earnings, accounts for aggregate inflation, but some demographic
then reported real earnings growth since 2019 would be groups may be disproportionately exposed to inflation due
2 percentage points lower—but even when using the CPI to to differences in groups’ consumption patterns—implying
deflate nominal earnings, real earnings have risen for most lower real earnings growth for groups with greater exposure to
groups since 2019. inflation.
average rate over the previous five years.4

The slowing in population growth over
2020–21 was due to both a sharp decline in
net immigration and a spike in COVID-related
deaths.5 Had the population increased over
2020–21 at the same rate as over the previous
five years, the labor force would have been
about 1¾ million larger as of the second
quarter of this year.6
As a result, labor markets remained

extremely tight . . .
Reflecting very strong demand for workers
alongside still-subdued supply, a wide range
of indicators have continued to point to an
extremely tight labor market despite the fact
that the level of payroll employment in May
remained about 820,000 below the level in
February 2020.7 The number of total available
jobs, measured by total employment plus
posted job openings, continued to far exceed
the number of available workers, measured by
the size of the labor force.8 The gap was
4. Population forecasts just before the onset of the

pandemic also projected faster population growth
for 2021–22 than has been realized. For example, the
Congressional Budget Office projected 0.8 percent
growth per year in 2021–22 in its January 2020 budget
and economic projections; see Congressional Budget
Office (2020), The Budget and Economic Outlook: 2020
to 2030 (Washington: CBO, January), https://www.cbo.
gov/publication/56020. Before 2015, population growth
was even higher. For example, the average growth rate in
the working-age population between 1980 and 2014 was
1.2 percent per year.
5. The effect of COVID-related deaths on the labor
force, however, was relatively smaller, because these
deaths have been concentrated among older individuals,
who tend to have low LFPRs.
6. This calculation uses the actual LFPR in May 2022
and multiplies it by the level of the population that would
have been realized in that month had population growth
over 2020–21 been the same as the growth observed over
2015–19.
7. After adjusting for population growth since the
beginning of the pandemic, the shortfall in payrolls
relative to their pre-pandemic level was about 2.3 million
in May.
8. The labor force includes all people aged 16
and older who are classified as either employed or
unemployed.
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.
Percent change from year earlier . . . and nominal wages continued to

Compensation per hour,
increase at a robust pace
10
business sector
8
Reflecting very tight labor market conditions,
Atlanta Fed’s
nominal wages continued to rise at historically
6
Wage Growth Tracker rapid rates. For example, the employment
4 cost index (ECI) of total compensation rose
2 4.8 percent over the 12 months ending in
+ March, well above 2.8 percent from a year
0
_
Employment cost index, Average hourly earnings, earlier (figure 13). The most recent readings
private sector private sector 2 include a surge in bonuses, which may reflect
the challenges of retaining and hiring workers.
2014 2016 2018 2020 2022
In addition, wage growth as computed by
NOTE: Business-sector compensation is on a 4-quarter percent change
basis. For the private-sector employment cost index, change is over the the Federal Reserve Bank of Atlanta, which
12 months ending in the last month of each quarter; for private-sector
average hourly earnings, the data are 12-month percent changes; for the
tracks the median 12-month wage growth
Atlanta Fed’s Wage Growth Tracker, the data are shown as a 3-month of individuals responding to the Current
moving average of the 12-month percent change.
SOURCE: Bureau of Labor Statistics; Federal Reserve Bank of Atlanta, Population Survey, picked up markedly this
Wage Growth Tracker; all via Haver Analytics.
year and rose more than 6 percent in May, well
above the 3 to 4 percent pace reported over the
previous few years.
9. Another usual indicator of the gap between

available jobs and available workers is the ratio of job
openings to unemployment. At the end of April, this
indicator showed that there were 1.9 job openings per
unemployed person.
That said, there are some signs that

nominal wage growth may be leveling off or
moderating. The growth of wages and salaries
as measured by the ECI moderated from
5.6 percent at an annual rate in the second half
of last year to 5.2 percent early this year. And
even as payroll employment continued to grow
rapidly and the unemployment rate continued
to fall, the three-month change in average
hourly earnings declined from about 6 percent
at an annual rate late last year to 4.5 percent
in May, with the moderation in earnings
growth particularly notable for employees in
the sectors that experienced especially strong
wage growth last year, such as leisure and
hospitality.
Following a period of solid growth, labor

productivity softened
The extent to which sizable wage gains
raise firms’ unit costs and act as a source of
inflation pressure depends importantly on the
pace of productivity growth. Considerable 14. Change in business-sector output per hour
uncertainty remains around the ultimate
effects of the pandemic on productivity. Percent, annual rate
From 2019 through 2021, productivity growth 4
in the business sector picked up (albeit by 3

less than compensation growth), averaging
2
about 2¼ percent at an annual rate—about
1 percentage point faster than the average pace 1
of growth over the previous decade (figure 14). +
0
Some of this pickup in productivity growth _
might reflect persistent factors. For example, 1

the pandemic resulted in a high rate of new
business formation, the widespread adoption 1949– 1974– 1996– 2004– 2009– 2019– 2022
73 95 2003 08 18 21
of remote work technology, and a wave of
NOTE: Changes are measured from Q4 of the year immediately
labor-saving investments. preceding the period through Q4 of the final year of the period, except
2022 changes, which are calculated from 2021:Q1 to 2022:Q1.
The latest reading, however, showed a
decline in business-sector productivity in the
first quarter of this year. While quarterly
productivity data are notoriously volatile, this
decline nevertheless highlights the possibility
that some of the earlier productivity gains
could prove transitory, perhaps reflecting
worker effort initially surging in response to
employment shortages and hiring difficulties
and then subsequently returning to more

normal levels.10 If the gap between wage
growth and productivity growth remains
comparably wide in the future, the result
will be significant upward pressure on firms’
labor costs.
Gross domestic product declined in the

15. Real gross domestic product
first quarter of 2022 after having surged
in the fourth quarter of 2021 . . .
Quarterly Trillions of chained 2012 dollars
Real gross domestic product (GDP) is reported
20.0 to have surged at a 6.9 percent annual rate in
19.5
the fourth quarter of 2021—and then to have
declined at a 1.5 percent annual rate in the first
19.0
quarter—because of fluctuations in net exports
18.5 and inventory investment (figure 15). These
18.0 two categories of expenditures are volatile even
in normal times, and they have been even more
17.5
so in recent quarters. Some improvement in
17.0
supply chain conditions late last year appears
to have enabled firms to rebuild depleted
2015 2016 2017 2018 2019 2020 2021 2022
inventories; inventory investment surged in
SOURCE: Bureau of Economic Analysis via Haver Analytics.
the fourth quarter and then moderated to a
still-elevated pace in the first quarter, thereby
weighing on GDP growth. Other measures
of activity, including employment, industrial
production, and gross domestic income,
indicate continued growth in the first quarter.
. . . while growth in consumer spending

and business investment was solid in the
first quarter
After abstracting from these volatile
components, growth in private domestic final
demand (consumer spending plus residential
and business fixed investment—a measure
that tends to be more stable and better reflects
the strength of overall economic activity)
was solid in the first quarter, supported by
some unwinding of supply bottlenecks and a
further reopening of the economy. The most
recent spending data and other indicators
suggest that private fixed investment may be
10. The November 2021 Beige Book reported that

many employers were planning to increase hiring because
of concerns that their current workforce was being
overworked.
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.
on motor vehicles grew markedly in the 17. Wealth-to-income ratio

first quarter, reflecting improvements in
both domestic and foreign production, and Quarterly Ratio
spending on services (especially at restaurants) 8.5

grew briskly.
8.0
That said, consumer spending growth has 7.5
moderated from its very rapid pace from 7.0
early 2021 as fiscal support has declined 6.5

from historical highs, some households have 6.0
likely depleted excess savings accumulated 5.5
during the pandemic, and inflation has eroded 5.0
households’ purchasing power.
2006 2008 2010 2012 2014 2016 2018 2020 2022
The composition of spending remains more NOTE: The series is the ratio of household net worth to disposable
tilted toward goods and away from services personal income.
SOURCE: For net worth, Federal Reserve Board, Statistical Release
than it was before the pandemic. Real goods Z.1, “Financial Accounts of the United States”; for income, Bureau of
Economic Analysis via Haver Analytics.
spending is still well above its trend, while
real spending on services remains below trend 18. Personal saving rate
(figure 16). Nevertheless, the composition
Monthly Percent
continued to shift back toward services. While
goods spending was only modestly higher in 36
April compared with its average from late last 32
year, services spending rose significantly. 28

24
. . . supported by high levels of wealth 20

16
Household wealth grew by roughly $30 trillion 12
between late 2019 and late 2021 because of 8
rises in equity and house prices along with 4
the elevated rate of saving in 2020 and 2021 0
(figures 17 and 18). Since the beginning of the 2006 2008 2010 2012 2014 2016 2018 2020 2022
year, wealth has declined because of the drop NOTE: The data extend through April 2022.
in equity prices. Nevertheless, wealth remains SOURCE: Bureau of Economic Analysis via Haver Analytics.
19. Consumer credit flows well above pre-pandemic levels, providing

Billions of dollars, monthly rate
continuing support for consumer spending.
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
3.0 . . . while home sales fell amid low

2.5
inventories and rising mortgage rates
Home sales stepped down substantially from
2014 2016 2018 2020 2022
the very high levels prevailing late last year
NOTE: The data are contract rates on 30-year, fixed-rate conventional
home mortgage commitments and extend through June 9, 2022. and are now close to pre-pandemic levels
SOURCE: Freddie Mac Primary Mortgage Market Survey.
(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
suggest that so far, demand remains strong

2006 2008 2010 2012 2014 2016 2018 2020 2022
relative to the pace at which homes are being
NOTE: The data are monthly and extend through April 2022. New
made available for sale. For example, the share home sales include only single-family sales. Existing home sales include
of homes off market within two weeks remains single-family, condo, and co-op sales.
SOURCE: For new home sales, U.S. Census Bureau; for existing home
elevated, and as of April, several measures of sales, National Association of Realtors; all via Haver Analytics.
national house prices were up about 20 percent
from a year earlier, though less in real terms 23. Real prices of existing single-family houses
(figure 23).
Quarterly 2005:Q1 = 100
Business fixed investment rose strongly 130

in the first quarter but may now be 120
moderating 110
Zillow index
100
Investment in equipment and intangibles S&P/Case-Shiller
national index
surged at a 12½ percent annual rate in the 90
first quarter (figure 24). Investment demand 80

remained strong, as worker shortages and CoreLogic 70
price index
high-capacity utilization in manufacturing 60
likely maintained strong incentives for firms
to automate production and boost capital 2006 2008 2010 2012 2014 2016 2018 2020 2022
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.
Investment in nonresidential structures

declined moderately in the first quarter after
falling more rapidly over the second half of
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.
Credit also remained broadly available to

small businesses. The share of small firms
reporting that it was more difficult to obtain
loans (compared with three months earlier)
remained low by historical standards. Loan
origination data through April were consistent
with credit availability being comparable
with pre-pandemic levels amid gradually
25. Real imports and exports of goods recovering demand for small business credit.
and services Most measures of loan performance remained
Quarterly Billions of chained 2012 dollars largely stable; through April, default and
4,000
delinquency rates remained below their pre-
3,750 pandemic levels.
3,500
Imports
3,250 The strong U.S. demand has partly been
3,000 met through a rapid rise in imports
2,750
Exports 2,500 Driven by the continued strength in domestic
2,250 economic activity, including still-strong
2,000 demand for goods consumption, U.S. imports
1,750
continued to grow at a rapid pace, surging well
1,500
above their pre-pandemic trend (figure 25).
2008 2010 2012 2014 2016 2018 2020 2022 High levels of imported goods have kept
SOURCE: Bureau of Economic Analysis via Haver Analytics. international logistics channels operating
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
The support to economic activity Current account

7
provided by federal fiscal actions
2001 2004 2007 2010 2013 2016 2019 2022
continued to diminish . . .
NOTE: GDP is gross domestic product. Current account balance data
In response to the pandemic, the federal extend through 2021:Q4.
SOURCE: Bureau of Economic Analysis via Haver Analytics.
government enacted fiscal policies to address
the economic consequences of the pandemic.
Because the boost to spending from these
policies ended last year, the effects on demand
are likely waning this year and weighing on
GDP growth.
. . . and, in turn, the budget deficit has

fallen sharply from pandemic highs, and
the growth of federal debt has moderated
The Congressional Budget Office estimates
that fiscal policies enacted since the start of
the pandemic will increase federal deficits
roughly $5.4 trillion by the end of fiscal
year 2030, with the largest deficit effects
having occurred in fiscal 2020 and 2021.11
These policies, combined with the effects of
the automatic stabilizers—the reduction in tax
receipts and increase in transfers that occur
as a consequence of depressed economic
11. For more information, see Congressional Budget

Office (2020), “The Budgetary Effects of Laws Enacted in
Response to the 2020 Coronavirus Pandemic, March and
April 2020,” June, https://www.cbo.gov/system/files/2020-
06/56403-CBO-covid-legislation.pdf; Congressional
Budget Office (2021), “The Budgetary Effects of Major
Laws Enacted in Response to the 2020–21 Coronavirus
Pandemic, December 2020 and March 2021,” September,
https://www.cbo.gov/system/files/2021-09/57343-
Pandemic.pdf; and Congressional Budget Office
(2021), “Senate Amendment 2137 to H.R. 3684, the
Infrastructure Investment and Jobs Act, as Proposed on
August 1, 2021,” August 9, https://www.cbo.gov/system/
files/2021-08/hr3684_infrastructure.pdf.
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.
. . . but hiring and construction outlays

have continued to lag
Despite the return to in-person schooling and
the strong fiscal position of state and local
governments, state and local government
payrolls continued to expand only modestly
in the first half of 2022. Employment levels
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
2012 2014 2016 2018 2020 2022
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.
total of 1½ percentage points. The expected

path of the federal funds rate over the next few 30. State and local government payroll employment
years also shifted up substantially since late
Monthly Millions of jobs
February (figure 31). Economic data releases
and FOMC communications were viewed
20.5
by market participants as implying tighter
monetary policy than previously expected. 20.0
Market-based measures suggest that investors 19.5
anticipate the federal funds rate to exceed
3.6 percent by the end of this year, which is 19.0
about 2 percentage points higher than the level 18.5

expected in late February. The same measures
suggest that the federal funds rate is expected 18.0
to peak at about 4 percent in mid-2023 before

2006 2008 2010 2012 2014 2016 2018 2020 2022
gradually declining to about 3.1 percent by
the end of 2025, which is about 1.4 percentage SOURCE: Bureau of Labor Statistics via Haver Analytics.
points higher than the end-2025 rate expected

in late February.
Similarly, according to the results of the

Survey of Primary Dealers and the Survey of
Market Participants, both conducted by the
Federal Reserve Bank of New York in April,
the median of respondents’ projections for
31. Market-implied federal funds rate path the most likely path of the federal funds rate
Quarterly Percent
shifted up significantly since January.12
4.5 Before late February, the expected path of

June 14, 2022
4.0 the federal funds rate had started to increase
3.5
notably in the third quarter of last year, in
3.0
anticipation of increases in the target range.
February 25, 2022 2.5
Consistent with the rise in the expected
2.0
1.5
path of the federal funds rate, yields on
1.0
Treasury securities and corporate bonds, as
.5 well as mortgage rates, all started to increase
0 materially at a similar time. Meanwhile,
broad equity price indexes have declined
2022 2023 2024 2025 2026
on net. Overall, these moves in asset prices
NOTE: The federal funds rate path is implied by quotes on overnight
index swaps—a derivative contract tied to the effective federal funds rate. suggest tightening of financial conditions even
The implied path as of February 25, 2022, is compared with that as of
June 14, 2022. The path is estimated with a spline approach, assuming a
before the initial increase in the target range
term premium of 0 basis points. The February 25, 2022, path extends of the federal funds rate occurred in March
through 2026:Q1 and the June 14, 2022, path through 2026:Q2.
SOURCE: Bloomberg; Federal Reserve Board staff estimates. (figure 32).
32. Financial market indicators Yields on U.S. nominal Treasury securities
Daily Percent also rose considerably
7 Yields on nominal Treasury securities across
Investment-grade corporate 6 maturities have risen considerably since late
Mortgage rate 5
February (figure 33). After a brief dip in
late February, following Russia’s invasion
4
of Ukraine, yields rose steadily amid higher
3
inflationary pressures and associated
2 expectations for monetary policy tightening.
10-year Treasury
1 The increases in nominal Treasury yields
0 were primarily accounted for by rising
real yields. Uncertainty about longer-term
2015 2016 2017 2018 2019 2020 2021 2022
interest rates—as measured by the implied
NOTE: Investment-grade corporate reflects the effective yield of the
ICE Bank of America Merrill Lynch triple-B U.S. Corporate Index volatility embedded in the prices of near-term
(C0A4). The mortgage rate is contract rates on 30-year, fixed-rate options on 10-year interest rate swaps—also
conventional home mortgage commitments. Mortgage rate data extend
through June 9, 2022. increased significantly, reportedly reflecting,
SOURCE: Department of the Treasury via Haver Analytics; Freddie
Mac Primary Mortgage Market Survey; ICE Data Indices, LLC, used in part, an increase in uncertainty about the
with permission. policy outlook.
33. Yields on nominal Treasury securities
Yields on other long-term debt increased
Daily Percent substantially
5-year 4
Across credit categories, corporate bond
10-year 3 yields have increased substantially and
2 12. The results of the Survey of Primary Dealers

and the Survey of Market Participants are available
2-year 1 on the Federal Reserve Bank of New York’s website at
https://www.newyorkfed.org/markets/primarydealer_
0 survey_questions.html and https://www.newyorkfed.org/
markets/survey_market_participants, respectively.
2012 2014 2016 2018 2020 2022
SOURCE: Department of the Treasury via Haver Analytics.
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
municipal bonds are now moderately above 4

their historical medians. On net, corporate 2
bond spreads are moderately above their pre- Municipal
0
pandemic levels, and municipal bond spreads
are near levels prevailing shortly before the 2010 2012 2014 2016 2018 2020 2022
pandemic. While the widening of corporate NOTE: Investment-grade corporate reflects the effective yield of the
bond spreads since late February appears ICE Bank of America Merrill Lynch (BofAML) triple-B U.S. Corporate
Index (C0A4). High-yield corporate reflects the effective yield of the ICE
to partly reflect a deterioration in market BofAML High Yield Index (H0A0). Municipal reflects the yield to worst
expectations of future credit quality, corporate of the ICE BofAML U.S. Municipal Securities Index (U0A0).
SOURCE: ICE Data Indices, LLC, used with permission.
and municipal credit quality thus far in 2022
have remained strong. So far this year, defaults
have been low, and upgrades of bond ratings
have outpaced downgrades in both markets.
35. Yield and spread on agency mortgage-backed
securities
Since late February, yields on agency
Percent Basis points
mortgage-backed securities (MBS)—an
important pricing factor for home mortgage
5 250
rates—increased significantly, as longer-term Yield
Treasury yields increased and spreads over 200
4
comparable-maturity Treasury securities 150
widened (figure 35). MBS spreads increased as 3
market participants’ expectations of a gradual 100
reduction in the Federal Reserve’s balance 2

50
Spread
sheet shifted to a faster reduction.
1 0
Broad equity price indexes declined

2012 2014 2016 2018 2020 2022
sharply, on net, amid substantial volatility
NOTE: The data are daily. Yield shown is for the uniform
mortgage-backed securities 30-year current coupon, the coupon rate at
Broad equity price indexes were volatile and which new mortgage-backed securities would be priced at par, or face,
value, for dates after May 31, 2019; for earlier dates, the yield shown is
declined sharply, on net, amid sustained for the Fannie Mae 30-year current coupon. Spread shown is to the
inflation pressures and expectations of average of the 5-year and 10-year nominal Treasury yields.
SOURCE: Department of the Treasury; J.P. Morgan. Courtesy of J.P.
monetary policy tightening, as well as Morgan Chase & Co., Copyright 2022.
heightened uncertainty regarding Russia’s
invasion of Ukraine and the economic outlook
(figure 36). Bank stock prices also declined on
net. One-month option-implied volatility on
the S&P 500 index—the VIX—rose notably to
elevated levels in the days following Russia’s
invasion of Ukraine. The VIX trended down
for some time only to increase again and
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
Developments Related to Financial Stability

This discussion reviews vulnerabilities in the U.S. previously very elevated levels but were still above
financial system. The framework used by the Federal their historical median. Corporate-to-Treasury spreads
Reserve Board for assessing the resilience of the U.S. widened but remained below their historical median.
financial system focuses on financial vulnerabilities Spreads on leveraged loans were little changed, and
in four broad areas: asset valuations, business and leveraged loan issuance remained solid. House prices
household debt, leverage in the financial sector, and continued to rise at a rapid pace that further outstripped
funding risks. With inflation running higher than rent growth. Commercial real estate prices also rose
expected, the invasion of Ukraine, and the pandemic’s further, with some price indexes surpassing their
continued effects on supply chains and consumer 2006 peaks.
demand patterns, uncertainty about the economic The rapid growth of nominal GDP outpaced the
outlook increased, and prices of some financial assets growth of total debt of nonfinancial businesses and
fluctuated widely. Treasury yields increased markedly, households. The ratio of the aggregate debt owed by
and valuation pressures in corporate securities markets the private nonfinancial sector to nominal GDP further
eased, but real estate prices have risen further this year declined to near pre-pandemic levels (figure A). Net
despite a rise in mortgage rates. While business and leverage of large nonfinancial businesses held stable at
household debt has been growing solidly, the ratio of (continued on next page)
private nonfinancial credit to gross domestic product
(GDP) decreased to near pre-pandemic levels and most
indicators of credit quality remained robust. Large bank A. Private nonfinancial-sector credit-to-GDP ratio
capital ratios dipped in the first quarter, but overall
leverage in the financial sector appears moderate Quarterly Ratio
and little changed this year. A few signs of funding

pressures emerged amid the escalation of geopolitical 1.8
tensions. However, broad funding markets proved
resilient, and with direct exposures of U.S. financial 1.6
institutions to Russia and Ukraine being small, financial
1.4
spillovers have been limited to date. Nevertheless, the
effect of high inflation, supply chain disruptions, and 1.2
the ongoing geopolitical tensions remain substantial
sources of uncertainty with the potential to further 1.0
stress the financial system.
.8
valuation measures based on current expectations
of cash flows decreased in some markets but continued
to be high relative to historical norms. Reflecting a less 1982 1987 1992 1997 2002 2007 2012 2017 2022
accommodative monetary policy stance associated NOTE: The shaded bars indicate periods of business recession as
with elevated inflation and a tight labor market, yields defined by the National Bureau of Economic Research: January
1980–July 1980, July 1981–November 1982, July 1990–March 1991,
on Treasury securities increased markedly and reached March 2001–November 2001, December 2007–June 2009, and February
somewhat above their pre-pandemic levels. Broad 2020–April 2020. GDP is gross domestic product.
SOURCE: Federal Reserve Board, Statistical Release Z.1, “Financial
equity prices fluctuated widely and declined sharply. Accounts of the United States”; Bureau of Economic Analysis, national
Prices relative to earnings forecasts declined from income and product accounts; Federal Reserve Board staff calculations.
Developments Related to Financial Stability (continued)

below pre-pandemic levels, supported by ample cash have been directly affected by the Russia–Ukraine
holdings. Fueled by strong earnings and low borrowing conflict, but loan exposures of large U.S. banks to
costs, the ratio of earnings to interest expenses for the these firms and borrowers in Ukraine and Russia are
median firm among public nonfinancial businesses rose small. However, several indirect channels—heightened
to its highest level in two decades, indicating that large volatility in asset markets; new disruptions in payment,
firms were better able to service debt. However, for clearing, or settlement systems; and interconnections
firms in industries hit hardest by the pandemic, leverage with large European banks—could adversely affect the
remains elevated and interest coverage ratios are lower. U.S. economy and financial system.
The financial position of many households continued to Funding risks at domestic banks and broker-
improve. Household debt relative to nominal GDP as dealers are low, but structural vulnerabilities persist at
well as mortgage, auto, and credit card delinquencies some money market funds (MMFs), bond funds, and
were in the bottom range of the levels observed over stablecoins. Banks relied only modestly on short-term
the past 20 years. Household credit growth has been wholesale funding, and the share of high-quality liquid
almost exclusively among prime-rated borrowers, assets at banks remained historically high. Assets
including for residential mortgages. Nonetheless, under management at prime and tax-exempt MMFs
some households remained financially strained and have continued to decline, but these funds remain a
vulnerable to adverse shocks during this period of structural vulnerability due to their susceptibility to
heightened uncertainty. runs. In December 2021, the Securities and Exchange
vulnerabilities from financial-sector leverage are Commission proposed reforms to MMFs, including
well within their historical range. Risk-based capital the adoption of swing pricing for certain fund types,
ratios at domestic bank holding companies declined increased liquidity requirements, and other measures
some in the first quarter of 2022 but remained well meant to make them more resilient to redemptions. The
above regulatory requirements. Banks increased loan Russian invasion of Ukraine does not appear to have
loss provisions to reflect higher uncertainty about left a material imprint on broader short-term funding
the economic outlook and continued to report that markets. Trading conditions in those markets have been
rising interest rates will support their profitability stable, issuance continued, and spreads remained well
going forward. However, higher interest rates cause below the levels reached in March 2020. Although
losses in the market value of banks’ long-term fixed- depth in markets for Treasury securities and some
rate assets. Leverage remained high at life insurance commodity and equity derivatives has been low by
companies and was likely somewhat elevated at hedge historical standards, those markets have functioned
funds, though the most comprehensive data for hedge normally after the initial shock to the nickel market.
funds are considerably lagged. vulnerabilities of most Elevated market volatility—particularly in commodity
U.S. financial institutions to the Russian invasion of markets—caused central counterparties (CCPs) to make
Ukraine appear to be limited. Some nonbank financial larger margin calls. To date, clearing members have
intermediaries—such as commodity trading firms— (continued)
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.
at low levels since then. Market depth based

on the S&P 500 futures is below pre-pandemic
levels and currently in the bottom decile of its
historical distribution since 2018.
Short-term funding market conditions

remained stable . . .
Conditions in money markets have been stable
and orderly. Increases in the target range for
the federal funds rate fully passed through to
market overnight rates. The effective federal
funds rate and other unsecured overnight
rates have been a few basis points below the
interest rate on reserve balances since late
February. The Secured Overnight Financing
Rate has been at or below the offering rate at
the overnight reverse repurchase agreement
(ON RRP) facility, given ample liquidity and
a limited supply of Treasury bills. Softness
in repurchase agreement rates contributed to
ongoing increases in ON RRP take-up, which
reached an average of around $2.1 trillion per
day in June. Russia’s invasion of Ukraine does
not appear to have left a material imprint in
the broad U.S. dollar funding markets to date.
In late February and early March, spreads
on some longer-tenor commercial paper and
negotiable certificates of deposit increased
notably amid uncertainties around monetary
policy tightening and Russia’s invasion of
Ukraine. These spreads have broadly narrowed
since mid-March.
38. Ratio of total commercial bank credit to nominal
gross domestic product
Weighted average maturities for money market
Quarterly Percent funds (MMFs) stand at low levels, as MMFs
tend to adjust their portfolios toward shorter-
80 tenor instruments to position for rising interest
75 rates around monetary policy tightening cycles.
70
Bank credit expanded in the first quarter
65 amid strong loan demand
60 Strong loan growth pushed the ratio of bank
credit to GDP higher in the first quarter
55
(figure 38). The acceleration in growth was
broad based, with balance growth accelerating
2004 2006 2008 2010 2012 2014 2016 2018 2020 2022
for most major loan categories. Growth
SOURCE: Federal Reserve Board, Statistical Release H.8, “Assets and
Liabilities of Commercial Banks in the United States”; Bureau of was particularly strong for commercial and
Economic Analysis via Haver Analytics. industrial and credit card loans, for which
demand continued to strengthen in the first

quarter according to the April 2022 Senior
Loan Officer Opinion Survey on Bank
Lending Practices. More recently, loan growth
moderated somewhat in May amid higher
rates and a more uncertain economic outlook 39. Profitability of bank holding companies
but remained strong. Bank profitability also
remained strong but fell somewhat in the Percent, annual rate Percent, annual rate
first quarter, in part as a result of declines 2.0 30

in investment banking revenue and the 1.5
Return on assets
20
fading boost to profitability from the release 1.0
in previous quarters of loan loss reserves .5 10
+ +
accumulated in 2020 (figure 39). Nevertheless, 0 0_
_
higher interest rates and strong loan demand .5 Return on equity
10
are expected to support bank profitability in 1.0
the near term. Delinquency rates on bank 1.5
20
loans remained low. 2.0 30
2004 2006 2008 2010 2012 2014 2016 2018 2020 2022
International Developments NOTE: The data are quarterly.

SOURCE: Federal Reserve Board, Form FR Y-9C, Consolidated
Financial Statements for Holding Companies.
Economic activity continued to recover
abroad . . .
Economic activity continued to recover in
many foreign economies in the first quarter,
albeit at a slower pace than last year’s
40. Unemployment rate in selected advanced foreign
strong performance. The still-robust growth economies
in many foreign economies reflected the
recovery in many parts of the world from Monthly Percent
previous pandemic shocks amid progress on

14
vaccinations and a greater ability to cope Euro area
12
with outbreaks without extensive lockdowns.
Moreover, unemployment rates in many 10
advanced foreign economies (AFEs) continued Canada 8
to decline and are now below their pre-
6
pandemic levels (figure 40).
4
More recently, headwinds from the war in United Kingdom Japan 2

Ukraine and COVID-19 lockdowns in China
weighed on the foreign recovery. The slowing 2006 2008 2010 2012 2014 2016 2018 2020 2022
of activity has been particularly sharp in NOTE: The data for the United Kingdom extend through March 2022
and are centered 3-month averages of monthly data. The data for the
China, with recent indicators plunging amid euro area and Japan extend through April 2022.
COVID-related mobility restrictions. In SOURCE: For the United Kingdom, Office for National Statistics; for
Japan, Ministry of Health, Labour and Welfare; for the euro area,
Europe, recent indicators also show a sharp Statistical Office of the European Communities; for Canada, Statistics
Canada; all via Haver Analytics.
slowing, reflecting lower real incomes, reduced
confidence of households and businesses in
the economy, and continued supply chain
disruptions.
. . . while foreign inflation remained on

the rise in most economies . . .
As in the United States, inflation in many
foreign economies has continued to rise.
Soaring energy prices have remained a
major driver of higher inflation in AFEs,
and rising food prices accounted for most of
the increase in inflation in emerging market
economies (EMEs). Food and energy price
rises have made up the bulk of the increase,
though supply chain disruptions have
contributed as well, and inflationary pressures
have broadened as elevated input costs are
increasingly passed through to prices of goods
and services. (See the box “Global Inflation.”)
. . . and many foreign central banks are

tightening monetary policy
In response to elevated inflation and
broadening price pressures, many AFE central
banks increased policy rates, and some started
to reduce the size of their balance sheets.
Concerns over the persistence of inflationary
pressures led several EME central banks,
primarily those in Latin America, to raise
their policy rates further. Several central banks
in emerging Asia, where inflation had been
more subdued but has recently begun to rise,
also started to raise policy rates. (See the box
“Monetary Policy in Foreign Economies.”)
41. Nominal 10-year government bond yields in
selected advanced foreign economies Financial conditions abroad tightened
Weekly Percent since the beginning of the year . . .
6 As central banks raised interest rates or
United Kingdom 5
signaled that they would do so soon, market-
based policy expectations and sovereign
4
bond yields rose significantly in many AFEs
Canada 3
Germany (figure 41). The rise in sovereign bond yields
2 reflects increases in both real yields, arising
1 from less accommodative central bank
+
0
_ communications, and inflation compensation.
1 Since the start of the year, short- and medium-
term inflation compensation measures in
2006 2008 2010 2012 2014 2016 2018 2020 2022 the euro area rose more than in many other
NOTE: The data are weekly averages of daily benchmark yields and
extend through June 10, 2022.
AFEs, reflecting the region’s larger exposure
SOURCE: Bloomberg. to the inflationary pressures stemming from
Russia’s invasion of Ukraine. Sovereign bond
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)
Global Inflation (continued)

B. Foreign consumer price inflation components
Advanced foreign economies ex Japan Emerging market economies ex China
Percent Percent
Energy Energy
Food 8 Food 8
Core 7 Core 7
6 6
5 5
4 4
3 3
2 2
1 1
2017–19 avg. April 2022 2017–19 avg. 2022:Q2
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.
C. Diffusion index for foreign core prices D. 5-to-10-year inflation swaps

Monthly Share of prices rising more than 3 percent Daily Percent
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
2016 2017 2018 2019 2020 2021 2022

2012 2014 2016 2018 2020 2022
NOTE: The data use the 12-month rise in prices. The prices of items are NOTE: The euro-area and United Kingdom data have been adjusted
weighted according to their usual weights in the consumer price index using an interpolated price index to mitigate rollover jumps at
and the Harmonised Index of Consumer Prices. The data extend through month-ends. The United Kingdom’s inflation swaps are based on the
April 2022. retail price index (RPI). RPI inflation is, on average, 75 to 100 basis
SOURCE: Haver Analytics; Federal Reserve Board staff calculations. points higher than consumer price index inflation. The data are at a
business-day frequency.
SOURCE: Bloomberg; Haver Analytics; Federal Reserve Board staff
calculations.
Monetary Policy in Foreign Economies

With inflation rising sharply across the globe, central followed with additional rate hikes in subsequent
banks have broadly shifted toward tighter monetary meetings, taking its policy rate to 1 percent in May. The
policy. Policy tightening started last year, as some Bank of Canada (BOC) began raising its policy rate in
emerging market central banks—particularly those in March with a 25 basis point hike. In response to sharply
Latin America—increased policy rates out of concern that higher inflation and the view that economic slack in
sharp increases in inflation could become entrenched the Canadian economy had been absorbed, the BOC
in inflation expectations. Among the advanced foreign followed with hikes of 50 basis points each in April
economies (AFEs), central banks of some smaller and June, bringing the policy rate to 1.5 percent. As
economies (New Zealand and Norway) with particularly inflation concerns grew more widespread, the Reserve
strong recoveries were the first to hike their policy rates Bank of Australia (RBA) and the Swedish Riksbank
last autumn, while policy expectations for some major pivoted sharply to hike rates in May, and the European
AFE central banks began to rise sharply (figure A). Central Bank (ECB) recently stated that it intends to start
Last December, the Bank of England (BOE) raised raising its policy rate in July.
its policy rate from 0.1 percent to 0.25 percent, citing Supporting the overall thrust toward tighter global
a strong labor market and rising inflation. This year, monetary policy, several AFE central banks that had
with U.K. inflation picking up more sharply, the BOE expanded their balance sheets over the past two years
are now allowing them to shrink. In recent months, the
A. 12-month policy expectations for selected advanced BOE, the BOC, the RBA, and the Swedish Riksbank have
foreign economies begun to shrink their balance sheets by stopping full
reinvestments of maturing government bond holdings.
Weekly Basis points The BOE has indicated that it will consider accelerating
400 the pace of balance sheet reduction by selling U.K.
350 government bonds; it will provide an update in
300 August on a strategy for possible future bond sales.
250 After tapering its purchases in recent months, the ECB
Canada 200 announced it will end net asset purchases as of July 1.
150 Not all major foreign central banks have been
100 tightening monetary policy. The Bank of Japan (BOJ)
50 has maintained its overnight policy rate at negative
United Kingdom + 0.1 percent, given its outlook that Japanese inflation
0
_
Japan
50 will remain subdued in the medium term. The BOJ also
Euro area
100 vowed to continue purchasing Japanese government
bonds to defend its current yield curve control target
2016 2017 2018 2019 2020 2021 2022
band around 0 percent for the 10-year nominal yield. In
NOTE: The data are weekly averages of daily 12-month market-implied addition, the People’s Bank of China recently increased
central bank policy rates. The 12-month policy rates are implied by its monetary stimulus through reductions in reserve
quotes on overnight index swaps tied to the policy rates. The data extend
through June 10, 2022. requirement ratios and some key benchmark interest
SOURCE: Bloomberg; Federal Reserve Board staff estimations. rates amid a weakening of economic activity in China.
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
100 Concerns about persistently high inflation

China 90 and associated monetary policy tightening
Japan 80 across countries, as well as Russia’s invasion
of Ukraine and COVID lockdowns in
2016 2017 2018 2019 2020 2021 2022
China, weighed on foreign risky asset prices
NOTE: The data are weekly averages of daily data and extend through
June 10, 2022. (figure 42). Equities in many AFEs have
SOURCE: For the euro area, Dow Jones Euro Stoxx Index; for Japan, declined since the beginning of the year.
Tokyo Stock Price Index; for China, Shanghai Composite Index; all via
Bloomberg. (For Dow Jones Indices licensing information, see the note Equity declines were particularly strong in the
on the Contents page.)
euro area, given the region’s trade and financial
43. Emerging market mutual fund flows linkages to Russia and concerns over the
Billions of dollars
possibility of the conflict spreading to other
Equity fund flows
parts of Europe. Euro-area corporate bond
Bond fund flows 100 spreads have widened since the beginning of
75 the year and are well above their pre-pandemic
50 levels.
25
+
0
Financial conditions in EMEs have tightened
_
25
since the beginning of the year but are not
particularly tight relative to historical norms.
50
EME-dedicated funds have experienced
75
net outflows so far this quarter, reversing
2012 2014 2016 2018 2020 2022 the inflows in the first quarter of this year
NOTE: The bond and equity fund flows data are quarterly sums of weekly (figure 43). Outflows have been concentrated
data from December 29, 2011, to June 8, 2022. Weekly data span Thursday
through Wednesday, and the quarterly values are sums over weekly data for in Asia, especially China. Since Russia’s
weeks ending in that quarter. The fund flows data exclude funds located in
China.
invasion of Ukraine, investment funds that
SOURCE: EPFR Global. focus on emerging Europe have experienced
particularly rapid outflows. EME sovereign
bond spreads widened considerably. European
emerging market equities and Chinese equities
declined significantly, the latter amid COVID-
related lockdowns and related supply chain
constraints as well as continued regulatory
uncertainty. Latin American equities,
supported in part by rising commodity prices,
declined by less than other emerging markets.
. . . 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
dollar index—a measure of the trade-weighted Dollar appreciation

115
value of the dollar against foreign currencies— EME dollar index
110
has risen notably amid safe-haven flows and AFE dollar index
105
increases in U.S. yields (figure 44). The dollar 100
appreciated more against AFE currencies
95
than EME currencies, as rising commodity
90
prices supported Latin American currencies.
85
The Chinese renminbi depreciated against the
80
dollar amid growth concerns related to the
75
lockdowns in China and weaker-than-expected Broad dollar index
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.
45. Selected interest rates
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.
46. Federal Reserve assets and liabilities
Weekly Trillions of dollars
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.”
Monetary Policy Rules in the Current Environment

Simple interest rate rules relate a policy interest figure A shows a “balanced-approach (shortfalls)”
rate, such as the federal funds rate, to a small number rule, which represents one simple way to illustrate
of other economic variables—typically including the the Committee’s focus on shortfalls from maximum
current deviation of inflation from its target value employment.2 These rules embody key design
and a measure of resource slack in the economy. principles of good monetary policy, including that the
Policymakers consult policy rate prescriptions derived policy rate should be adjusted forcefully enough over
from a variety of policy rules as part of their monetary time to ensure a return of inflation to the central bank’s
policy deliberations without mechanically following the longer-run objective and to anchor longer-term inflation
prescriptions of any particular rule. expectations at levels consistent with that objective.
Recently, inflation has run well above the All five rules feature the difference between inflation
Committee’s 2 percent longer-run objective, the and the FOMC’s longer-run objective of 2 percent. The
U.S. economy has been very strong, and labor five rules use the unemployment rate gap, measured
market conditions have been very tight. Against as the difference between an estimate of the rate of
this background, the simple monetary policy rules unemployment in the longer run (utLR) and the current
considered in this discussion have called for raising the unemployment rate; the first-difference rule includes
federal funds rate significantly. Starting in March, the the change in the unemployment rate gap rather than
Federal Open Market Committee (FOMC) began raising its level.3 All but the first-difference rule include an
the target range for the federal funds rate and indicated (continued)
that it anticipates that ongoing increases in the target
range will be appropriate. The FOMC also began the rule is based on a rule suggested by Athanasios Orphanides
process of significantly reducing the size of the Federal (2003), “Historical Monetary Policy Analysis and the Taylor
Rule,” Journal of Monetary Economics, vol. 50 (July), pp. 983–
Reserve’s balance sheet. 1022. A review of policy rules is in John B. Taylor and John
C. Williams (2011), “Simple and Robust Rules for Monetary
Policy,” in Benjamin M. Friedman and Michael Woodford,
Selected Policy Rules: Descriptions eds., Handbook of Monetary Economics, vol. 3B (Amsterdam:
In many economic models, desirable economic North-Holland), pp. 829–59. The same volume of the
Handbook of Monetary Economics also discusses approaches
outcomes can be achieved if monetary policy other than policy rules for deriving policy rate prescriptions.
responds in a predictable way to changes in economic 2. The FOMC’s revised Statement on Longer-Run Goals
conditions. In recognition of this idea, economists and Monetary Policy Strategy, released in August 2020,
have analyzed many monetary policy rules, including refers to “shortfalls of employment” from the Committee’s
assessment of its maximum level rather than the “deviations of
the well-known Taylor (1993) rule, the “balanced employment” used in the previous statement. The “balanced-
approach” rule, the “adjusted Taylor (1993)” rule, and approach (shortfalls)” rule reflects this change by prescribing
the “first difference” rule.1 In addition to these rules, policy rates identical to those prescribed by the balanced-
approach rule at times when the unemployment rate is
above its estimated longer-run level. However, when the
1. The Taylor (1993) rule was introduced in John B. Taylor unemployment rate is below that level, the balanced-approach
(1993), “Discretion versus Policy Rules in Practice,” Carnegie- (shortfalls) rule is more accommodative than the balanced-
Rochester Conference Series on Public Policy, vol. 39 approach rule because it does not call for the policy rate to
(December), pp. 195–214. The balanced-approach rule was rise as the unemployment rate drops further.
analyzed in John B. Taylor (1999), “A Historical Analysis of 3. Implementations of simple rules often use the output
Monetary Policy Rules,” in John B. Taylor, ed., Monetary Policy gap as a measure of resource slack in the economy. The rules
Rules (Chicago: University of Chicago Press), pp. 319–41. The described in figure A instead use the unemployment rate
adjusted Taylor (1993) rule was studied in David Reifschneider gap because that gap better captures the FOMC’s statutory
and John C. Williams (2000), “Three Lessons for Monetary goal to promote maximum employment. Movements in
Policy in a Low-Inflation Era,” Journal of Money, Credit and these alternative measures of resource utilization are highly
Banking, vol. 32 (November), pp. 936–66. The first-difference correlated. For more information, see the note below figure A.
A. Monetary policy rules
Taylor (1993) rule RtT93 = rtLR + πt + 0.5(πt − πLR) + (utLR − ut)
Balanced-approach rule RtBA = rtLR + πt + 0.5(πt − πLR) + 2(utLR − ut)
Balanced-approach (shortfalls) rule RtBAS = rtLR + πt + 0.5(πt − πLR) + 2min{(utLR − ut), 0}
Adjusted Taylor (1993) rule RtT93adj = max{RtT93 − Zt, ELB}
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)
Monetary Policy Rules in the Current Environment (continued)

B. Historical federal funds rate prescriptions from simple policy rules
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
2018 2019 2020 2021 2022

NOTE: The rules use historical values of core personal consumption expenditures inflation, the unemployment rate, and, where applicable, historical
values of the midpoint of the target range for the federal funds rate. Quarterly projections of longer-run values for the federal funds rate and the
unemployment rate used in the computation of the rules’ prescriptions are derived through interpolations of biannual projections from Blue Chip
Economic Indicators. The longer-run value for inflation is set to 2 percent. The rules data are quarterly, and the federal funds rate data are the monthly
average of the daily midpoint of the target range for the federal funds rate.
SOURCE: Federal Reserve Bank of Philadelphia; Wolters Kluwer, Blue Chip Economic Indicators; Federal Reserve Board staff calculations.
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.”
Developments in the Federal Reserve’s Balance Sheet and

Money Markets
With the Federal Reserve’s net asset purchases A. Balance sheet comparison
Billions of dollars
concluding in March, the size of the balance sheet has
been roughly stable at $9 trillion since February 2022 June 8, February 16,
Change
2022 2022
(figures A and B). At its May 2022 meeting, the FOMC Assets
announced plans for significantly reducing the size Total securities
of the Federal Reserve’s balance sheet starting June 1. Treasury securities 5,772 5,739 33
Balance sheet reduction, along with increases in the Agency debt and MBS 2,710 2,707 3
target range for the federal funds rate, firms the stance Net unamortized premiums 336 350 −14
of monetary policy. Repurchase agreements 0 0 0
Despite the roughly constant total size of the Loans and lending facilities
balance sheet, reserves—the largest liability on the PPPLF 19 28 −8
Federal Reserve’s balance sheet—have continued to fall Other loans and lending
significantly since February 2022, reflecting growth in facilities 37 40 −3
take-up at the overnight reverse repurchase agreement Central bank liquidity swaps 0 0 0
(ON RRP) facility (figure C).1 In addition, the Treasury Other assets 47 48 −1
General Account (TGA)—another volatile liability— Total assets 8,921 8,911 10
rose considerably upon larger than expected tax Liabilities and capital
receipts and peaked just short of $1 trillion on June 2 Federal Reserve notes 2,227 2,185 42
before retracing the movement. Reserves held by depository
Usage at the ON RRP facility has risen $496 billion institutions 3,317 3,797 −480
since February 2022 to stand at a record $2.2 trillion Reverse repurchase
agreements
at the time of this report. Low rates on repurchase
Foreign official and
agreements—reflecting abundant liquidity in the international accounts 272 257 14
banking system and limited Treasury bill supply—have Others 2,163 1,644 519
contributed to this increasingly elevated participation. U.S. Treasury General
(continued on next page) Account 627 709 −82
Other deposits 247 251 −5
1. Reserves consist of deposits held at Federal Reserve Other liabilities and capital 69 67 1
Banks by depository institutions, such as commercial banks, Total liabilities and capital 8,921 8,911 10
savings banks, credit unions, thrift institutions, and U.S.
Note: MBS is mortgage-backed securities. PPPLF is Paycheck Protection
branches and agencies of foreign banks. Reserve balances Program Liquidity Facility. Components may not sum to totals because of
allow depository institutions to facilitate daily payment rounding.
flows, both in ordinary times and in stress scenarios, without Source: Federal Reserve Board, Statistical Release H.4.1, “Factors Affecting
borrowing funds or selling assets. Reserve Balances.”
Developments in the Federal Reserve’s Balance Sheet and Money Markets (continued)
B. Federal Reserve assets C. Federal Reserve liabilities
Weekly Trillions of dollars Weekly Trillions of dollars
Other assets 12 Reverse repurchase agreements 12

Loans Deposits of depository institutions (reserves) 11
11
Central bank liquidity swaps U.S. Treasury General Account
10 10
Repurchase agreements Other deposits
9 Capital and other liabilities 9
Agency debt and MBS
Treasury securities 8 Federal Reserve notes 8
held outright 7 7
6 6
5 5
4 4
3 3
2 2
1 1
2019 2020 2021 2022 2019 2020 2021 2022
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
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
Core PCE inflation . . . . .

4 4.3 2.7 2.3 4.2–4.5 2.5–3.2 2.1–2.5 4.1–5.0 2.5–3.5 2.0–2.8
March projection . . . . . 3.6–4.5 2.1–3.5 2.0–3.0
4.1 2.6 2.3 3.9–4.4 2.4–3.0 2.1–2.4
Memo: Projected
appropriate policy path
Federal funds rate . . . . . . 3.4 3.8 3.4 2.5 3.1–3.6 3.6–4.1 2.9–3.6 2.3–2.5 3.1–3.9 2.9–4.4 2.1–4.1 2.0–3.0
Note: Projections of change in real gross domestic product (GDP) and projections for both measures of inflation are percent changes from the fourth quarter of the previous year to
the fourth quarter of the year indicated. PCE inflation and core PCE inflation are the percentage rates of change in, respectively, the price index for personal consumption expenditures
(PCE) and the price index for PCE excluding food and energy. Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year
indicated. Each participant’s projections are based on his or her assessment of appropriate monetary policy. Longer-run projections represent each participant’s assessment of the rate
to which each variable would be expected to converge under appropriate monetary policy and in the absence of further shocks to the economy. The projections for the federal funds
rate are the value of the midpoint of the projected appropriate target range for the federal funds rate or the projected appropriate target level for the federal funds rate at the end of the
specified calendar year or over the longer run. The March projections were made in conjunction with the meeting of the Federal Open Market Committee on March 15–16, 2022. One
participant did not submit longer-run projections for the change in real GDP, the unemployment rate, or the federal funds rate in conjunction with the March 15–16, 2022, meeting, and
one participant did not submit such projections in conjunction with the June 14–15, 2022, meeting.
1. For each period, the median is the middle projection when the projections are arranged from lowest to highest. When the number of projections is even, the median is the average
of the two middle projections.
2. The central tendency excludes the three highest and three lowest projections for each variable in each year.
3. The range for a variable in a given year includes all participants’ projections, from lowest to highest, for that variable in that year
4. Longer-run projections for core PCE inflation are not collected.
52 Part 3: Summary of Economic Projections
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
2017 2018 2019 2020 2021 2022 2023 2024 Longer

run
Percent
Unemployment rate
7
2017 2018 2019 2020 2021 2022 2023 2024 Longer

run
Percent
PCE inflation
7
2017 2018 2019 2020 2021 2022 2023 2024 Longer

run
Percent
Core PCE inflation
7
2017 2018 2019 2020 2021 2022 2023 2024 Longer

run
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.
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
2022 2023 2024 Longer run
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.
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
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
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
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.
Figure 3.B. Distribution of participants’ projections for the unemployment rate, 2022–24 and over the longer run
2022
June projections 18
March projections 16
14
12
10
8
6
4
2
2.8− 3.0− 3.2− 3.4− 3.6− 3.8− 4.0− 4.2− 4.4−

2.9 3.1 3.3 3.5 3.7 3.9 4.1 4.3 4.5
Percent range
2023
18
16
14
12
10
8
6
4
2
2.8− 3.0− 3.2− 3.4− 3.6− 3.8− 4.0− 4.2− 4.4−

2.9 3.1 3.3 3.5 3.7 3.9 4.1 4.3 4.5
Percent range
2024
18
16
14
12
10
8
6
4
2
2.8− 3.0− 3.2− 3.4− 3.6− 3.8− 4.0− 4.2− 4.4−

2.9 3.1 3.3 3.5 3.7 3.9 4.1 4.3 4.5
Percent range
Longer run
18
16
14
12
10
8
6
4
2
2.8− 3.0− 3.2− 3.4− 3.6− 3.8− 4.0− 4.2− 4.4−

2.9 3.1 3.3 3.5 3.7 3.9 4.1 4.3 4.5
Percent range
Figure 3.C. Distribution of participants’ projections for PCE inflation, 2022–24 and over the longer run
2022 June projections

March projections
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
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
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
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
Figure 3.D. Distribution of participants’ projections for core PCE inflation, 2022–24

March projections
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
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
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
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

March projections
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
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
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
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
Figure 4.A. Uncertainty and risks in projections of GDP growth
Median projection and confidence interval based on historical forecast errors

Percent
Change in real GDP 6
Median of projections
70% confidence interval 5
2
Actual
1
−1
−2
−3
2017 2018 2019 2020 2021 2022 2023 2024
FOMC participants’ assessments of uncertainty and risks around their economic projections
Number of participants Number of participants
Uncertainty about GDP growth Risks to GDP growth

June projections June projections
March projections March projections
18 18
16 16
14 14
12 12
10 10
8 8
6 6
4 4
2 2
Lower Broadly Higher Weighted to Broadly Weighted to

similar downside balanced upside
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.”
Figure 4.B. Uncertainty and risks in projections of the unemployment rate

Percent
Unemployment rate
Median of projections 7
70% confidence interval
6
Actual 5
2017 2018 2019 2020 2021 2022 2023 2024
Uncertainty about the unemployment rate Risks to the unemployment rate

18 18
16 16
14 14
12 12
10 10
8 8
6 6
4 4
2 2

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.”
Figure 4.C. Uncertainty and risks in projections of PCE inflation

Percent
PCE inflation
Median of projections 7
70% confidence interval
6
3
Actual
2
2017 2018 2019 2020 2021 2022 2023 2024
Uncertainty about PCE inflation Risks to PCE inflation

18 18
16 16
14 14
12 12
10 10
8 8
6 6
4 4
2 2

Uncertainty about core PCE inflation Risks to core PCE inflation

18 18
16 16
14 14
12 12
10 10
8 8
6 6
4 4
2 2

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.”
Figure 4.D. Diffusion indexes of participants’ uncertainty assessments

Diffusion index
Change in real GDP
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
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.
Figure 4.E. Diffusion indexes of participants’ risk weightings

Diffusion index
Change in real GDP
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
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.
Figure 5. Uncertainty and risks in projections of the federal funds rate
Percent
Federal funds rate
Midpoint of target range 6
Median of projections
70% confidence interval*
5
Actual
2
2017 2018 2019 2020 2021 2022 2023 2024
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.
Table 2. Average historical projection error ranges

Percentage points
Variable 2022 2023 2024
Change in real GDP1. . . . . . . . . ± 1.5 ± 1.9 ± 2.3
Unemployment rate1. . . . . . . . . ± 0.8 ± 1.4 ± 1.9
Total consumer prices . . . . . . .
2
± 1.0 ± 1.3 ± 1.4
Short-term interest rates3. . . . . ± 0.6 ± 1.8 ± 2.3
Note: Error ranges shown are measured as plus or minus the root mean squared
error of projections for 2002 through 2021 that were released in the summer by
various private and government forecasters. As described in the box “Forecast
Uncertainty,” under certain assumptions, there is about a 70 percent probability that
actual outcomes for real GDP, unemployment, consumer prices, and the federal funds
rate will be in ranges implied by the average size of projection errors made in the past.
For more information, see David Reifschneider and Peter Tulip (2017), “Gauging
the Uncertainty of the Economic Outlook Using Historical Forecasting Errors: The
Federal Reserve’s Approach,” Finance and Economics Discussion Series 2017-020
(Washington: Board of Governors of the Federal Reserve System, February), https://
dx.doi.org/10.17016/FEDS.2017.020.
1. Definitions of variables are in the general note to table 1.
2. Measure is the overall consumer price index, the price measure that has been
most widely used in government and private economic forecasts. Projections are
percent changes on a fourth quarter to fourth quarter basis.
3. For Federal Reserve staff forecasts, measure is the federal funds rate. For
other forecasts, measure is the rate on 3-month Treasury bills. Projection errors are
calculated using average levels, in percent, in the fourth quarter.
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)
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
Monetary Policy Report

June 17, 2022
Board of Governors of the Federal Reserve System

Fed Monetary Policy Report June

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Fed Monetary Policy Report June

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For use at 11:00 a.m.

Monetary Policy rePort

Board of Governors of the Federal Reserve System

Board of Governors of the

Washington, D.C., June 17, 2022

The President of the Senate

Jerome H. Powell, Chair

Part 1: Recent Economic and Financial Developments . . . . . . . . . . . . . . . . . . . . . . 5

Part 2: Monetary Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

Part 3: Summary of Economic Projections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

The PCE price index for energy increased

2. Personal consumption expenditures price indexes

100 . . . which, in turn, partly reflected rising

Excluding food and energy prices,

the 12-month measure of core PCE inflation

That said, monthly core inflation readings

Nevertheless, the recent inflation readings have

while longer-term expectations moved up 5.5

Longer-term expectations, which are more

Developments in Global Supply Chains

in April was more than 18 percent above its year-

Monthly January 2020 = 100

110 C. Producer price index for manufacturing

Monthly Percent change from year earlier

2019 2020 2021 2022

Monthly Percent change Monthly Percent change

Developments in Global Supply Chains (continued)

5 to 10 years rose to 3.3 percent in the June

Market-based measures of longer-term

which is produced by Federal Reserve Board .5

staff and synthesizes information from a large 0

The labor market continued to tighten

return to activities that had been cut back by 140

The increase in payrolls was accompanied 130

by further declines in the unemployment 125

9. Civilian unemployment rate over the past 50 years (figure 9). The

2 While labor demand remained very

Meanwhile, the supply of labor rose only

10. Unemployment rate, by race and ethnicity

2006 2008 2010 2012 2014 2016 2018 2020 2022

In addition to subdued participation, a second

2. The Bureau of Labor Statistics incorporated new

Developments in Employment and Earnings across Groups

Age group Race and ethnicity: Prime age

Monthly Percentage points Monthly Percentage points

2019 2020 2021 2022 2019 2020 2021 2022

Educational attainment: Prime age Parental status: Prime-age women

Monthly Percentage points Monthly Percentage points

2019 2020 2021 2022 2019 2020 2021 2022

Developments in Employment and Earnings across Groups (continued)

similar in size to the gaps that existed before the Men

5. Just as with the change in the EPOP ratio, each group’s

average rate over the previous five years.4

As a result, labor markets remained

4. Population forecasts just before the onset of the

Percent change from year earlier . . . and nominal wages continued to

9. Another usual indicator of the gap between

That said, there are some signs that

Following a period of solid growth, labor

From 2019 through 2021, productivity growth 4

in the business sector picked up (albeit by 3

might reflect persistent factors. For example, 1

and then subsequently returning to more

Gross domestic product declined in the