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Page 1

Minutes of the Federal Open Market Committee

July 26–27, 2022

A joint meeting of the Federal Open Market Committee Patricia Zobel, Deputy Manager, System Open Market
and the Board of Governors of the Federal Reserve Sys- Account
tem was held in the offices of the Board of Governors
on Tuesday, July 26, 2022, at 10:30 a.m. and continued Ann E. Misback, Secretary, Office of the Secretary,
on Wednesday, July 27, 2022, at 9:00 a.m. 1 Board

Attendance Andreas Lehnert, Director, Division of Financial

Jerome H. Powell, Chair Stability, Board
John C. Williams, Vice Chair
Michael S. Barr Jennifer J. Burns, Deputy Director, Division of
Michelle W. Bowman Supervision and Regulation, Board; Sally Davies,
Lael Brainard Deputy Director, Division of International
James Bullard Finance, Board; Rochelle M. Edge, Deputy
Susan M. Collins Director, Division of Monetary Affairs, Board
Lisa D. Cook
Esther L. George Jon Faust and Joshua Gallin, Senior Special Advisers to
Philip N. Jefferson the Chair, Division of Board Members, Board
Loretta J. Mester
Christopher J. Waller Burcu Duygan-Bump, Jane E. Ihrig, Kurt F. Lewis,
Laura Lipscomb, John W. Schindler, Nitish R.
Meredith Black, Charles L. Evans, Patrick Harker, Neel Sinha, Paul R. Wood, and Rebecca Zarutskie,
Kashkari, and Helen E. Mucciolo, 2 Alternate Special Advisers to the Board, Division of Board
Members of the Committee Members, Board

Thomas I. Barkin, Raphael W. Bostic, and Mary C. Linda Robertson, Assistant to the Board, Division of
Daly, Presidents of the Federal Reserve Banks of Board Members, Board
Richmond, Atlanta, and San Francisco, respectively
William F. Bassett, Senior Associate Director, Division
James A. Clouse, Secretary of Financial Stability, Board
Brian J. Bonis, Assistant Secretary
Michelle A. Smith, Assistant Secretary Edward Nelson, Senior Adviser, Division of Monetary
Mark E. Van Der Weide, General Counsel Affairs, Board; Jeremy B. Rudd, Senior Adviser,
Trevor A. Reeve, Economist Division of Research and Statistics, Board
Stacey Tevlin, Economist
Beth Anne Wilson, Economist Andrew Figura, Associate Director, Division of
Research and Statistics, Board; Christopher J. Gust,
Shaghil Ahmed, Brian M. Doyle, Joseph W. Gruber, Associate Director, Division of Monetary Affairs,
David E. Lebow, Ellis W. Tallman, and William Board; Jeffrey D. Walker, 3 Associate Director,
Wascher, Associate Economists Division of Reserve Bank Operations and Payment
Systems, Board
Lorie K. Logan, Manager, System Open Market
Account

1 The Federal Open Market Committee is referenced as the 2 Elected as an Alternate by the Federal Reserve Bank of New
“FOMC” and the “Committee” in these minutes; the Board York, effective July 15, 2022.
of Governors of the Federal Reserve System is referenced as 3 Attended through the discussion of developments in finan-

the “Board” in these minutes. cial markets and open market operations.
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Page 2 Federal Open Market Committee

Patrick E. McCabe and Norman J. Morin, Deputy James F. Dolmas, Economic Policy Advisor and Senior
Associate Directors, Division of Research and Economist, Federal Reserve Bank of Dallas
Statistics, Board
Nina Boyarchenko, Department Head, Federal Reserve
David Arseneau, Assistant Director, Division of Bank of New York
Financial Stability, Board; Giovanni Favara and
Etienne Gagnon, Assistant Directors, Division of Jonathan Heathcote, Monetary Advisor, Federal
Monetary Affairs, Board Reserve Bank of Minneapolis

Penelope A. Beattie, 4 Section Chief, Office of the Federico Mandelman, Research Economist and
Secretary, Board; Valerie S. Hinojosa, Section Advisor, Federal Reserve Bank of Atlanta
Chief, Division of Monetary Affairs, Board
Developments in Financial Markets and Open
Alyssa Arute,3 Manager, Division of Reserve Bank Market Operations
Operations and Payment Systems, Board The deputy manager turned first to a discussion of fi-
nancial market developments. Financial markets over
Sriya L. Anbil, 5 Group Manager, Division of Monetary the intermeeting period reflected elevated uncertainty
Affairs, Board about the outlook. Most market participants appeared
to view a moderation of inflation and slower, but still
Fabian Winkler, Principal Economist, Division of positive, economic growth ahead as the most likely sce-
Monetary Affairs, Board nario. However, investors appeared to be increasingly
attentive to downside risks to the economy in light of
Peter M. Garavuso, Senior Information Manager, the potential for shocks from abroad and the continued
Division of Monetary Affairs, Board upside surprises to inflation.

David Na and Anthony Sarver, Senior Financial On net, financial conditions eased modestly over the pe-
Institution and Policy Analysts, Division of riod but remained substantially tighter than at the start
Monetary Affairs, Board of the year. Treasury yields fell, reflecting expectations
of slower growth as well as a decline in inflation com-
Brett Takacs, Senior Communications Analyst, pensation. Respondents to the Open Market Desk’s sur-
Division of Information Technology, Board veys of primary dealers and market participants marked
down their growth forecasts for 2022 and 2023 and at-
Becky C. Bareford, First Vice President, Federal tached higher odds than in the June survey to the possi-
Reserve Bank of Richmond bility that the U.S. economy could enter a recession in
coming quarters.
Kartik B. Athreya, Michael Dotsey, and Michelle M. Market participants perceived falling commodity
Neal, Executive Vice Presidents, Federal Reserve prices—particularly for oil—and the FOMC’s commit-
Banks of Richmond, Philadelphia, and New York, ment to bringing inflation down as pointing to lower in-
respectively flation ahead. Market-based measures of near-dated in-
flation compensation declined and continued to suggest
James P. Bergin, Spencer Krane, and Giovanni Olivei, that inflation would ease in coming quarters. In the
Senior Vice Presidents, Federal Reserve Banks of Desk surveys, respondents also expected inflation to de-
New York, Chicago, and Boston, respectively cline substantially in 2023 but assigned meaningful prob-
abilities to a wide range of potential outcomes, including
William D. Dupor, Vice President, Federal Reserve scenarios involving continued elevated rates of inflation.
Bank of St. Louis Far-forward market-based measures of inflation com-

Andrew Foerster, Senior Research Advisor, Federal

Reserve Bank of San Francisco

4 Attended Tuesday’s session only. 5 Attended from the discussion of the economic and financial
situation through the end of Wednesday’s session.
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Minutes of the Meeting of July 26–27, 2022 Page 3

pensation fell over the period. These measures contin- sheet runoff proceeded. The deputy manager noted that
ued to suggest that inflation would return over time to this process would involve adjustments across a number
the Committee’s 2 percent objective. of markets and that the staff would continue to monitor
developments in money markets closely.
In their assessment of the policy outlook, market partic-
ipants expected significant policy tightening in coming Regarding expectations for the evolution of the Federal
meetings as the Committee continued to respond to the Reserve’s balance sheet, market participants expected
current elevated level of inflation. Nearly all respond- the Committee to increase the monthly caps on System
ents to the Desk survey anticipated a 75 basis point in- Open Market Account (SOMA) redemptions beginning
crease in the target range at the current meeting, and in September, as announced in the Plans for Reducing
most expected a 50 basis point increase in September to the Size of the Federal Reserve’s Balance Sheet issued in
follow. The market-implied path of the federal funds May. Treasury coupon principal payments would first
rate indicated a peak policy rate of around 3.4 percent, fall below the $60 billion cap in September, with the re-
significantly lower than at the time of the June meeting. mainder of redemptions met with maturities of Treasury
The market-implied path suggested expectations that the bills. Paydowns of agency mortgage-backed securities
policy rate would fall thereafter. Most respondents to (MBS) were projected to fall below the higher Septem-
the Desk survey expected the federal funds rate to re- ber cap of $35 billion beginning in September.
main above the survey’s longer-run policy rate of
The deputy manager ended with an update on SOMA
2.4 percent through the end of 2024, but, on average, re-
net income. Staff projections suggested that net income
spondents placed significant probabilities on lower rate
would likely turn negative in coming months. That de-
outcomes.
velopment would be reflected in a temporary deferred
Regarding developments abroad, central banks in ad- asset on Reserve Bank balance sheets. Any deferred as-
vanced foreign economies (AFEs) had quickened the set would not affect the Committee’s ability to imple-
pace of policy tightening in order to address above-tar- ment monetary policy, and the deferred asset would be
get inflation. Eight advanced-economy central banks extinguished over time as net income turned positive
raised their policy rates over the period. Along lines sim- again in later years.
ilar to U.S. developments, market-implied policy rates in
By unanimous vote, the Committee ratified the Desk’s
most AFEs fell at longer horizons and reflected expec-
domestic transactions over the intermeeting period.
tations that policy rates would reach peak levels by early
There were no intervention operations in foreign curren-
2023. In contrast to central banks in other advanced
cies for the System’s account during the intermeeting pe-
economies, the Bank of Japan confirmed its commit-
riod.
ment to accommodative policy. In this environment, the
exchange value of the dollar appreciated further, surpas- Staff Review of the Economic Situation
sing its March 2020 peak against advanced-economy The information available at the time of the July 26–27
currencies. meeting suggested that U.S. real gross domestic product
(GDP) had declined over the first half of the year. How-
The deputy manager next turned to a discussion of
ever, the labor market continued to be very tight, and
money markets and Desk operations. The 75 basis point
labor demand remained strong. Consumer price infla-
increase in the target range at the June meeting passed
tion—as measured by the 12-month percentage change
through fully to the federal funds rate and other over-
in the price index for personal consumption expendi-
night rates. Although downward pressure on overnight
tures (PCE)—remained elevated in May, and available
secured rates had persisted, the pronounced softness ob-
information suggested that inflation was still elevated in
served in the past intermeeting period had abated to
June.
some degree. The overnight reverse repurchase agree-
ment (ON RRP) facility continued to support policy im- Total nonfarm payroll employment posted a solid gain
plementation, and balances remained elevated. The dep- in June at a pace that was similar to that seen in April
uty manager anticipated that, in the near term, the evo- and May. The unemployment rate was unchanged in
lution of take-up at the ON RRP facility would continue June at 3.6 percent. The unemployment rate for African
to depend on changes in the supply of safe, short-term Americans moved lower in June, while the rate for His-
investments, and the demand for such investments by panics was unchanged; both rates were noticeably higher
money market mutual funds (MMMFs). ON RRP bal- than the national average. The labor force participation
ances were expected to decline over time as balance rate and the employment-to-population ratio both ticked
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Page 4 Federal Open Market Committee

down in June. The private-sector job openings rate, as June, mostly reflecting past increases in energy and food
measured by the Job Openings and Labor Turnover Sur- prices, but also a continued broadening of price pres-
vey, declined further in May but remained at a high level. sures to core goods and services. Many foreign central
Nominal wage growth continued to be rapid and broad banks tightened monetary policy to address high infla-
based, with average hourly earnings having risen 5.1 per- tion.
cent over the 12 months ending in June.
Staff Review of the Financial Situation
Real goods exports edged down in May after growing Over the intermeeting period, nominal and real Treasury
robustly in March and April. Real goods imports con- yields declined significantly, reportedly reflecting in-
tinued to step down from the exceptionally strong creased investor concerns about downside risks to the
March readings, driven by declines in imports of con- growth outlook as well as a decline in inflation compen-
sumer goods and capital goods. Exports and imports of sation. Sovereign yields in AFEs declined notably. The
services continued to be held back by an incomplete re- market-implied federal funds rate path for the next few
covery of international travel. The nominal U.S. inter- meetings rose but moved down noticeably at longer ho-
national trade deficit narrowed for a second consecutive rizons. Broad equity price indexes were higher, on net,
month in May from its record size in March. The avail- while credit spreads widened. Major foreign equity price
able data suggest that net exports contributed positively indexes edged higher, on net, and the exchange value of
to GDP growth in the second quarter. the dollar continued to appreciate. Amid the decline in
Treasury yields, longer-term borrowing costs declined
Consumer price inflation remained elevated. Total PCE
for households and businesses with higher credit ratings,
price inflation was 6.3 percent over the 12 months end-
and while credit availability remained generally available,
ing in May, and core PCE price inflation, which excludes
it appeared to tighten for most businesses and some
changes in consumer energy prices and many consumer
households.
food prices, was 4.7 percent over the same period. The
trimmed mean measure of 12-month PCE price infla- Broad equity price indexes were higher over the inter-
tion constructed by the Federal Reserve Bank of Dallas meeting period, amid heightened volatility. Declines in
was 4.0 percent in May, 2.1 percentage points higher interest rates likely supported stock prices over the pe-
than its year-earlier rate of increase. In June, the riod, while some positive earnings releases suggested to
12-month change in the consumer price index (CPI) was investors a less pessimistic corporate outlook. One-
9.1 percent, while core CPI inflation was 5.9 percent month option-implied volatility on the S&P 500 index—
over the same period. Survey-based measures of short- the VIX—decreased but remained significantly above its
run inflation expectations remained elevated; by con- pre-pandemic levels. Yields on corporate bonds de-
trast, some measures of longer-term inflation expecta- clined notably across the credit spectrum, but corporate
tions moved lower in recent weeks. bond spreads ended the period slightly wider. Spreads
on municipal bonds widened slightly as yields declined
Available indicators suggested that real PCE rose at a
by less than those of comparable-maturity Treasury se-
modest pace in the second quarter, while business in-
curities.
vestment, residential investment, and government pur-
chases all posted declines. Manufacturing output moved Conditions in short-term funding markets were stable
lower in May and June, and forward-looking indicators since the previous FOMC meeting, with the June in-
of manufacturing activity weakened broadly. crease in the Federal Reserve’s administered rates pass-
ing through promptly to overnight money markets. Se-
Foreign economic growth slowed notably in the second
cured overnight rates remained soft relative to the ON
quarter, as COVID-19-related lockdowns led to a sharp
RRP offering rate, with the downward pressure on rates
contraction in China and Russia’s war against Ukraine
attributed to continuing declines in net Treasury bill is-
took a toll on foreign activity, especially in Europe. In-
suance, elevated demand for collateral in the form of
dicators for June showed the Chinese economy re-
Treasury securities, and MMMFs maintaining very short
bounding as the lockdowns were eased. The global
portfolio maturities amid uncertainty about the near-
economy, however, continued to face headwinds from
term outlook for policy rate increases. Consistent with
disruptions to the supply of energy, elevated political un-
the downward pressure on repo rates, daily take-up in
certainties in Europe, and tighter global monetary and
the ON RRP facility increased. Spreads on lower-rated
financial conditions. Although most commodity prices
short-term commercial paper (CP) narrowed modestly,
moved lower from elevated levels in recent weeks, for-
on net. Bank core deposit rates moved up very little in
eign consumer price inflation continued to rise through
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Minutes of the Meeting of July 26–27, 2022 Page 5

response to the Federal Reserve’s increase in adminis- The credit quality of nonfinancial corporations remained
tered rates following the June FOMC meeting, while strong with low volumes of defaults on corporate bonds
MMMFs’ net yields rose, reflecting the increases in in May and on leveraged loans in June. The volume of
short-term rates over recent months. rating downgrades on speculative-grade credit in the cor-
porate bond market was similar to that of upgrades in
Investors’ concerns about global economic growth in-
June, while for leveraged loans, the volume of down-
tensified amid weaker-than-expected data on economic
grades exceeded the volume of upgrades in May and
activity and uncertainty about the supply of natural gas
June. The credit quality for C&I and CRE loans on
from Russia to Europe. Sovereign yields and medium-
banks’ books remained sound. However, respondents
term inflation compensation measures in major AFEs,
in the July Senior Loan Officer Opinion Survey on Bank
most notably in the euro area, moved down, with yields
Lending Practices (SLOOS) indicated increased con-
largely reversing the sharp increase that occurred just be-
cerns about credit quality in the near future as reasons
fore the June FOMC meeting. In the euro area, periph-
for their expectation of a tightening in lending standards
eral sovereign spreads were little changed following the
over the second half of 2022. Delinquency rates on CRE
widely anticipated announcement by the European Cen-
loans in CMBS declined in June, delinquency rates on
tral Bank of its Transmission Protection Instrument that
small business loans were little changed, and the credit
could be activated to counter disorderly conditions in
quality of municipal securities remained strong. The
euro-area bond markets. Major foreign equity price in-
credit quality of households stayed solid. Residential
dexes were volatile but generally edged higher, on net,
mortgage delinquencies and the share of mortgages in
supported by declines in sovereign yields. The dollar ap-
forbearance trended down. Credit card and auto credit
preciated somewhat further against most currencies and
delinquency rates rose somewhat over the first quarter
particularly against the euro as yield differentials between
but remained subdued by recent historical standards.
the United States and the euro area widened. Most Latin
American currencies depreciated against the dollar, in Business loans at banks expanded at a rapid pace in May
part reflecting the decline in global commodity prices. and June, despite higher interest rates and a more uncer-
tain economic outlook. C&I loans on banks’ books con-
In domestic credit markets, longer-term borrowing costs
tinued to grow robustly, with the July SLOOS citing rea-
for households and businesses with higher credit ratings
sons of increased demand by customers to finance in-
declined over the intermeeting period but borrowing
ventory and accounts receivable. However, issuance of
costs for lower rated firms were higher, on net. The
both agency and non-agency CMBS slowed significantly
credit quality of businesses, municipalities, and house-
in June. Credit appeared to be available to most small
holds remained stable. Credit remained generally avail-
businesses, although the share of small firms reporting
able, though credit availability appeared to tighten for
that it was difficult to obtain loans increased. Credit in
most businesses and for some households.
the residential mortgage market remained widely availa-
Borrowing costs linked to shorter-term interest rates ble for borrowers with higher credit ratings but tight for
generally increased, largely as a result of expectations of households with low credit scores. Volumes of home-
tighter monetary policy. Bank interest rates for both purchase mortgage originations declined in May and
commercial and industrial (C&I) and commercial real es- mortgage refinance volumes continued to fall. Con-
tate (CRE) loans increased in May and were close to pre- sumer credit remained broadly available to households
pandemic levels. Yields on institutional leveraged loans in April and May but respondents in the Federal Reserve
and newly issued commercial mortgage-backed securi- Bank of New York’s Survey of Consumer Expectations
ties (CMBS) increased amid financial market volatility indicated that it was harder to get credit in recent
and growing concerns about an economic slowdown. months. That said, auto loans outstanding continued to
Small businesses that borrow on a regular basis faced grow at a robust pace in April and May but credit card
notably higher borrowing costs in June. Interest rates balances moderated somewhat in May and June.
on most existing credit card accounts and on auto loans
The staff provided an update on its assessment of the
continued to trend upward. In contrast to many other
stability of the financial system and, on balance, charac-
borrowing rates, residential mortgage rates fell since the
terized the vulnerabilities of the U.S. financial system as
June FOMC meeting, in line with the drop in longer-
moderate, down from notable in January.
term yields, but remained near their highest levels since
2010. Equity and corporate debt prices declined significantly
since the last assessment, reflecting concerns over slower
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Page 6 Federal Open Market Committee

growth and lower risk appetite in corporate markets. Staff Economic Outlook
Declining risk appetite has also led to sharp declines in The projection for U.S. economic activity prepared by
the price of some digital assets. The staff noted that dig- the staff for the July FOMC meeting was noticeably
ital assets tended to be volatile. The staff also high- weaker than the June forecast, reflecting the economy’s
lighted the financial stability considerations associated reduced momentum and current and prospective finan-
with rapid growth in stablecoins, including their vulner- cial conditions that were expected to provide less sup-
ability to runs and the opacity of many aspects of their port to aggregate demand growth. As a result, while the
operations. Residential real estate prices continued to projected level of real GDP remained above potential
rise, and the staff noted that although valuations have this year, the gap was expected to have closed by the sec-
been elevated, mortgage underwriting standards have ond half of 2023. Similarly, the unemployment rate was
been stronger than in previous house-price cycles. CRE projected to start rising in the second half of 2022 and
prices continued to rise, and valuation pressures ap- to reach the staff’s estimate of its natural rate at the end
peared to be increasing. of next year.
The staff assessed that households were in a better posi- Total PCE price inflation was expected to be 4.8 percent
tion than in the mid-2000s to weather a downturn in in 2022, and core inflation was expected to be 4.0 per-
house prices, noting that mortgage debt growth has sig- cent. Core PCE price inflation was expected to step
nificantly lagged growth in house prices, leaving house- down to 2.6 percent in 2023 and to 2.0 percent in 2024;
holds with substantial equity cushions. Moreover, for the projected deceleration in core prices was attributable
much of the past decade, most new mortgage debt had to the anticipated resolution of supply–demand imbal-
been added by borrowers with prime credit scores. In ances, a labor market that was expected to become less
addition, the staff assessed that business leverage was tight over the projection period, and a projected decline
high, but businesses maintained ample cash on hand and in import price inflation. Total PCE inflation was ex-
their credit quality remained strong. Further, the ability pected to decline to 2.2 percent in 2023 and to 1.9 per-
of most firms to service their debt was at a historically cent in 2024, reflecting the anticipated slowing in core
high level, as measured by the interest coverage ratio. inflation and a projected rapid deceleration in consumer
food and energy prices in coming quarters.
The staff assessed that leverage in the financial sector
remained moderate. Recent declines in bank capital ra- The staff continued to judge that the risks to the baseline
tios were due to higher volatility, interest rate increases, projection for real activity were skewed to the downside,
and loan growth, but the recently concluded stress tests noting that supply chain bottlenecks, Russia’s war
suggested that participating banks could absorb losses against Ukraine, weak incoming data on spending, and
from a severe recession without breaching regulatory the tightening in financial conditions since the start of
minimums, and some banks were expected to increase the year supported this assessment. The staff viewed the
their capital ratios later this year. Leverage at hedge risks to the inflation projection as skewed to the upside
funds and life insurance companies remained relatively given the persistent upward surprises seen in the infla-
high. tion data, the possibility that inflation expectations
would become unanchored as a result of the large in-
Market liquidity had deteriorated in the oil and equities
crease in actual inflation over the past year, and the risk
markets since January, but market functioning continued
that supply conditions would not improve as much as
to be orderly. Yields offered by MMMFs were well
the baseline projection assumed.
above those offered by banks, and the staff noted that
this yield differential would attract inflows to MMMFs. Participants’ Views on Current Conditions and the
Noting the structural vulnerabilities associated with Economic Outlook
MMMFs, the staff highlighted the need to monitor the In their discussion of current economic conditions, par-
size and fragility of this sector and the progress of the ticipants noted that recent indicators of spending and
Security and Exchange Commission’s recently proposed production had softened. Nonetheless, job gains had
reforms. The staff noted that open-end bond and loan been robust in recent months, and the unemployment
mutual funds, which are also vulnerable to large-scale in- rate had remained low. Inflation remained elevated, re-
vestor withdrawals, had experienced outflows as interest flecting supply and demand imbalances related to the
rates rose. These outflows had proceeded in an orderly pandemic, higher food and energy prices, and broader
manner. price pressures. Participants recognized that Russia’s
war against Ukraine was causing tremendous human and
_____________________________________________________________________________________________
Minutes of the Meeting of July 26–27, 2022 Page 7

economic hardship. Participants judged that the war and house prices on home affordability. Participants antici-
related events were creating additional upward pressure pated that this slowdown in housing activity would con-
on inflation and were weighing on global economic ac- tinue and also expected higher borrowing costs to lead
tivity. Against this background, participants stated that to a slowing in other interest-sensitive household ex-
they were highly attentive to inflation risks. penditures, such as purchases of durable goods.
With regard to current economic activity, participants With respect to the business sector, participants noted
noted that consumer expenditures, housing activity, that investment spending had likely declined in the sec-
business investment, and manufacturing production had ond quarter. In addition, business survey data and infor-
all decelerated from the robust rates of growth seen in mation received from contacts indicated that manufac-
2021. The labor market, however, remained strong. turing orders and production had fallen in some Dis-
Participants observed that indicators of spending and tricts. Heightened uncertainty, concerns about inflation,
production suggested that the second quarter of this year tighter financial conditions, and a cutback in consumer
had seen a broad-based softening in economic activity. spending had led firms to downgrade economic pro-
Many participants remarked that some of the slowing, spects. Some participants noted that their contacts were
particularly in the housing sector, reflected the emerging reporting that businesses were in the process of reevalu-
response of aggregate demand to the tightening of finan- ating their capital expenditure plans, though a few par-
cial conditions associated with the ongoing firming of ticipants stated that some contacts had reported a degree
monetary policy. The unwinding of the large-scale sup- of short-term momentum in business activity arising
port to consumer spending provided by pandemic-re- from existing orders and from the implementation of ex-
lated fiscal policy actions, the inflation-induced reduc- pansion plans made before the tightening of financial
tion in real disposable income, and the move down in conditions. A few participants indicated that some busi-
the demand for some products from the elevated levels ness contacts had assessed that demand and supply were
seen in earlier stages of the pandemic had also all led to beginning to come into better balance. Even so, con-
slower growth in households’ expenditures. In addition, tacts in many areas continued to report major supply
a deterioration in the foreign economic outlook and a chain disruptions and anticipated that these were likely
strong dollar were contributing to a weakening of exter- to continue while also indicating that there were signs of
nal demand. Participants anticipated that U.S. real GDP improvement in supply conditions in some areas.
would expand in the second half of the year, but many
Participants observed that the labor market remained
expected that growth in economic activity would be at a
strong, with the unemployment rate very low, job vacan-
below-trend pace, as the period ahead would likely see
cies and quits close to historically high levels, and an el-
the response of aggregate demand to tighter financial
evated rate of nominal wage growth. Many participants
conditions become stronger and more broad based. Par-
also noted, however, that there were some tentative
ticipants noted that a period of below-trend GDP
signs of a softening outlook for the labor market: These
growth would help reduce inflationary pressures and set
signs included increases in weekly initial unemployment
the stage for the sustained achievement of the Commit-
insurance claims, reductions in quit rates and vacancies,
tee’s objectives of maximum employment and price sta-
slower growth in payrolls than earlier in the year, and
bility.
reports of cutbacks in hiring in some sectors. In addi-
In their discussion of the household sector, participants tion, although nominal wage growth remained strong ac-
commented that they were seeing many signs in the data, cording to a wide range of measures, there were some
and hearing reports from business contacts, of slower signs of a leveling off or edging down. In some Districts,
growth in consumer spending. Although the aggregate contacts had suggested that labor demand–supply imbal-
balance sheet for the household sector was strong and ances might be diminishing, with firms being more suc-
the unemployment rate was low, consumer sentiment cessful in hiring and retaining workers and under less
had deteriorated, and households were reportedly be- pressure to raise wages. Some participants noted that
coming more cautious in their expenditure decisions in the contribution that increases in labor supply could
light of uncertainty about the economic outlook and the make to reducing labor market imbalances was likely
reduction in purchasing power induced by price rises, limited, especially as the scope for labor force participa-
particularly increases in the prices of essentials such as tion to pick up was constrained by the ongoing move-
food, housing, and transportation. Participants also ob- ment of the large baby-boom cohort into their retire-
served that housing activity had weakened notably, re- ment years, while others highlighted factors holding
flecting the impact of higher mortgage interest rates and down participation that could wane in the future, such
_____________________________________________________________________________________________
Page 8 Federal Open Market Committee

as continuing pandemic-related concerns. Participants noted that the high cost of living was an especially great
observed that, in part because of tighter financial condi- burden on low- and middle-income households. Partic-
tions and an associated moderation in the growth of ag- ipants agreed that there was little evidence to date that
gregate demand, growth in employment would likely inflation pressures were subsiding. They judged that in-
slow further in the period ahead. They noted that this flation would respond to monetary policy tightening and
development would help bring labor demand and supply the associated moderation in economic activity with a
into better balance, reducing upward pressures on nom- delay and would likely stay uncomfortably high for some
inal wage growth and aiding the return of inflation to time. Participants also observed that in some product
2 percent. Several participants observed that the mod- categories, the rate of price increase could well pick up
eration in labor market conditions might well lag the further in the short run, with sizable additional increases
slowdown in economic activity. Participants remarked in residential rental expenses being especially likely.
that a moderation in labor market conditions would
Participants noted that supply bottlenecks were contin-
likely involve a decline in the number of job openings as
uing to contribute to price pressures. There were, how-
well as a moderate increase in unemployment from the
ever, some signs of gradual improvement in the supply
current very low rate. A couple of participants indicated
situation—including improved availability of certain key
that firms were keen to retain workers—a factor that
materials, less upward pressure on input prices, and a de-
could limit the increase in layoffs associated with a slow-
cline in delivery times. Contacts reported that there were
ing labor market.
nevertheless substantial continuing challenges. Partici-
Participants noted that indicators of spending and pro- pants judged that it would take considerable time for
duction pointed to less underlying strength in economic supply constraints to be resolved, and a few suggested
activity than was suggested by indicators of labor market that full resolution of supply difficulties would take
activity. With employment growth still strong, the weak- longer than they previously assessed. Several partici-
ening in spending data implied unusually large negative pants stressed that improvements in supply would be
readings on labor productivity growth for the year so far. helpful but by themselves could not be relied on to re-
Participants remarked that the strength of the labor mar- solve the supply and demand imbalances in the economy
ket suggested that economic activity may be stronger sufficiently rapidly. Participants emphasized that a slow-
than implied by the current GDP data, with several par- ing in aggregate demand would play an important role in
ticipants raising the possibility that the discrepancy reducing inflation pressures. They expected that the ap-
might ultimately be resolved by GDP being revised up- propriate firming of monetary policy and an eventual
ward. Several participants also observed, however, that easing of supply and demand imbalances would bring in-
the labor market might not be as tight as some indicators flation back down to levels consistent with the Commit-
suggested, and they noted that data provided by the pay- tee’s longer-run objective and keep longer-term inflation
roll processor ADP and employment as reported in the expectations well anchored. Participants discussed a
household survey both seemed to imply a softer labor number of factors likely to be helpful in bringing infla-
market than that suggested by the still-robust growth in tion back down to 2 percent. In addition to the Com-
payroll employment as reported in the establishment mittee’s ongoing policy firming and anchored longer-
survey. term inflation expectations, these included competitive
pressures restraining price increases, the apparent ab-
Participants observed that inflation remained unaccept-
sence of a wage–price spiral, the tightening of monetary
ably high and was well above the Committee’s longer-
policy abroad, and the impact of the appreciation of the
run goal of 2 percent. In light of the high CPI reading
dollar on import prices. However, they continued to
for June, participants noted that PCE inflation was likely
view commodity price developments as a potential
to have increased further in that month. Participants
source of upward pressure on inflation.
further observed that inflationary pressures were broad
based, a pattern reflected in large one-month increases Participants noted that expectations of inflation were an
in the trimmed mean CPI and core CPI measures. Par- important influence on the behavior of actual inflation
ticipants remarked that, although recent declines in gas- and stressed that moving to an appropriately restrictive
oline prices would likely help produce lower headline in- stance of policy was essential for avoiding an unanchor-
flation rates in the short term, declines in the prices of ing of inflation expectations. Such an unanchoring
oil and some other commodities could not be relied on would make achieving the Committee’s statutory objec-
as providing a basis for sustained lower inflation, as tives of maximum employment and price stability much
these prices could quickly rebound. Participants also more difficult. In assessing the current state of inflation
_____________________________________________________________________________________________
Minutes of the Meeting of July 26–27, 2022 Page 9

expectations, participants noted that recent readings on landscapes or the need to look at a broad range of pos-
market-based measures of inflation compensation were sible outcomes, including scenarios involving elevated
consistent with longer-term inflation expectations re- inflation and rising interest rates, when assessing finan-
maining anchored near 2 percent. They judged that this cial vulnerabilities and stability. Some participants com-
behavior of longer-term inflation expectations was likely mented on the financial stability challenges posed by dig-
partly due to the actual and expected firming of mone- ital assets. They noted that these assets, including sta-
tary policy and also likely reflected downward revisions blecoins, were subject to vulnerabilities—such as runs,
to the growth of aggregate demand expected in coming fire sales, and excessive leverage—similar to those asso-
years. In addition, several participants assessed that the ciated with more traditional assets. While the recent tur-
Committee’s ongoing monetary policy tightening was moil in digital asset markets had not spread to other asset
helping alleviate concerns among market participants classes, these participants saw digital assets’ rising im-
and wage and price setters that elevated inflation would portance and growing interconnectedness with other
become entrenched. Several participants observed that segments of the financial system as underscoring the
recent readings on survey measures of inflation expecta- need to establish a robust supervisory and regulatory
tions were broadly consistent with the Committee’s framework for this industry that would appropriately
2 percent longer-run inflation objective, although a few limit potential systemic risks. A few participants men-
participants noted that household surveys were indicat- tioned the need to strengthen the oversight and regula-
ing increasing divergences in views about the likely tion of certain types of nonbank financial institutions.
longer-run rate of inflation. Several participants noted that capital at some of the
largest banks had declined in recent quarters. These par-
In their discussion of risks, participants emphasized that
ticipants emphasized that it was important that the larg-
they were highly attentive to inflation risks and were
est banks have strong capital positions and that appro-
closely monitoring developments regarding both infla-
priate settings of regulatory and supervisory tools can
tion and inflation expectations. Uncertainty about the
help deliver that outcome. A couple of these partici-
medium-term course of inflation remained high, and the
pants highlighted the potential role that usage of the
balance of inflation risks remained skewed to the upside,
countercyclical capital buffer could play in this context.
with several participants highlighting the possibility of
further supply shocks arising from commodity markets. In their consideration of the appropriate stance of mon-
Participants saw the risks to the outlook for real GDP etary policy, participants concurred that the labor market
growth as primarily being to the downside. These down- was very tight and that inflation was far above the Com-
side risks included the possibility that the tightening in mittee’s 2 percent inflation objective. Participants noted
financial conditions would have a larger negative effect that recent indicators of spending and production had
on economic activity than anticipated, that there would softened, while, by contrast, job gains had been robust
be further pandemic-related economic disruptions, or and the unemployment rate had remained low. Against
that geopolitical and global economic developments this backdrop, all participants agreed that it was appro-
would lead to additional adverse economic or financial priate to raise the target range for the federal funds rate
disturbances. 75 basis points at this meeting and to continue the pro-
cess of reducing the Federal Reserve’s securities hold-
Several of the participants who commented on issues re-
ings, as described in the Plans for Reducing the Size of
lated to financial stability noted that, on balance, asset
the Federal Reserve’s Balance Sheet that the Committee
valuations had eased from elevated levels in recent
issued in May. Participants observed that, following this
months. High levels of capital and liquidity overall in
meeting’s policy rate hike, the nominal federal funds rate
the banking system, healthy household balance sheets,
would be within the range of their estimates of its
and the adoption of stronger mortgage underwriting
longer-run neutral level. Even so, with inflation elevated
standards following the Global Financial Crisis were also
and expected to remain so over the near term, some par-
cited among the factors that fostered financial stability
ticipants emphasized that the real federal funds rate
in the current environment. Several participants noted
would likely still be below shorter-run neutral levels after
that financial market liquidity had been low in some ar-
this meeting’s policy rate hike.
eas but that market functioning had, nonetheless, been
orderly. Several participants emphasized the importance In discussing potential policy actions at upcoming meet-
of avoiding complacency when assessing financial vul- ings, participants continued to anticipate that ongoing
nerabilities amid ever-changing economic and financial increases in the target range for the federal funds rate
_____________________________________________________________________________________________
Page 10 Federal Open Market Committee

would be appropriate to achieve the Committee’s objec- to raise the policy rate further, to appropriately restric-
tives. With inflation remaining well above the Commit- tive levels, if inflation were to run higher than expected.
tee’s objective, participants judged that moving to a re- Participants judged that a significant risk facing the
strictive stance of policy was required to meet the Com- Committee was that elevated inflation could become en-
mittee’s legislative mandate to promote maximum em- trenched if the public began to question the Committee’s
ployment and price stability. Participants concurred that resolve to adjust the stance of policy sufficiently. If this
the pace of policy rate increases and the extent of future risk materialized, it would complicate the task of return-
policy tightening would depend on the implications of ing inflation to 2 percent and could raise substantially
incoming information for the economic outlook and the economic costs of doing so. Many participants re-
risks to the outlook. Participants judged that, as the marked that, in view of the constantly changing nature
stance of monetary policy tightened further, it likely of the economic environment and the existence of long
would become appropriate at some point to slow the and variable lags in monetary policy’s effect on the econ-
pace of policy rate increases while assessing the effects omy, there was also a risk that the Committee could
of cumulative policy adjustments on economic activity tighten the stance of policy by more than necessary to
and inflation. Some participants indicated that, once the restore price stability. These participants highlighted
policy rate had reached a sufficiently restrictive level, it this risk as underscoring the importance of the Commit-
likely would be appropriate to maintain that level for tee’s data-dependent approach to judging the pace and
some time to ensure that inflation was firmly on a path magnitude of policy firming over coming quarters.
back to 2 percent.
Participants reaffirmed their strong commitment to re-
Participants concurred that, in expeditiously raising the turning inflation to the Committee’s 2 percent objective.
policy rate, the Committee was acting with resolve to Participants agreed that a return of inflation to the 2 per-
lower inflation to 2 percent and anchor inflation expec- cent objective was necessary for sustaining a strong labor
tations at levels consistent with that longer-run goal. market. Participants remarked that it would likely take
Participants noted that the Committee’s credibility with some time for inflation to move down to the Commit-
regard to bringing inflation back to the 2 percent objec- tee’s objective. Participants added that the course of in-
tive, together with its forceful policy actions and com- flation would be influenced by various nonmonetary fac-
munications, had already contributed to a notable tight- tors, including developments associated with Russia’s
ening of financial conditions that would likely help re- war against Ukraine and with supply chain disruptions.
duce inflation pressures by restraining aggregate de- Participants recognized that policy firming could slow
mand. Participants pointed to some evidence suggesting the pace of economic growth, but they saw the return of
that policy actions and communications about the future inflation to 2 percent as critical to achieving maximum
path of the federal funds rate were starting to affect the employment on a sustained basis.
economy, most visibly in interest-sensitive sectors. Par-
Committee Policy Action
ticipants generally judged that the bulk of the effects on
In their discussion of monetary policy for this meeting,
real activity had yet to be felt because of lags associated
members agreed that recent indicators of spending and
with the transmission of monetary policy, and that while
production had softened. Members also concurred that,
a moderation in economic growth should support a re-
nonetheless, job gains had been robust in recent months
turn of inflation to 2 percent, the effects of policy firm-
and the unemployment rate had remained low. Mem-
ing on consumer prices were not yet apparent in the
bers agreed that inflation remained elevated, reflecting
data. A number of participants posited that some of the
supply and demand imbalances related to the pandemic,
effects of policy actions and communications were
higher food and energy prices, and broader price pres-
showing up more rapidly than had historically been the
sures. In describing the sources of elevated inflation,
case, because the expeditious removal of policy accom-
members judged it pertinent to add a reference to higher
modation and supporting communications already had
food prices to the statement because of the notable rise
led to a significant tightening of financial conditions.
in these prices and the importance of food items in
In light of elevated inflation and the upside risks to the households’ budgets.
outlook for inflation, participants remarked that moving
Members concurred that Russia’s war against Ukraine
to a restrictive stance of the policy rate in the near term
was causing tremendous human and economic hardship.
would also be appropriate from a risk-management per-
They also agreed that the war and related events were
spective because it would better position the Committee
creating additional upward pressure on inflation and
_____________________________________________________________________________________________
Minutes of the Meeting of July 26–27, 2022 Page 11

were weighing on global economic activity. Members limit of $500 billion; the aggregate opera-
remarked that they remained highly attentive to inflation tion limit can be temporarily increased at
risks. Amid evidence that COVID-related lockdowns in the discretion of the Chair.
China had generally been lifted and had affected supply
• Conduct overnight reverse repurchase
chains only modestly, members generally considered it
agreement operations at an offering rate of
appropriate to omit from the July statement the sentence
2.3 percent and with a per-counterparty
that appeared in the June statement indicating that these
limit of $160 billion per day; the per-coun-
lockdowns were likely to exacerbate supply chain disrup-
terparty limit can be temporarily increased
tions.
at the discretion of the Chair.
In their assessment of the monetary policy stance neces-
sary for achieving the Committee’s maximum-employ- • Roll over at auction the amount of principal
ment and price-stability goals, the Committee decided to payments from the Federal Reserve’s hold-
raise the target range for the federal funds rate to 2¼ to ings of Treasury securities maturing in the
2½ percent and anticipated that ongoing increases in the calendar months of July and August that ex-
target range would be appropriate. In addition, mem- ceeds a cap of $30 billion per month. Re-
bers agreed that the Committee would continue reduc- deem Treasury coupon securities up to this
ing the Federal Reserve’s holdings of Treasury securities monthly cap and Treasury bills to the extent
and agency debt and agency MBS, as described in the that coupon principal payments are less
Plans for Reducing the Size of the Federal Reserve’s Bal- than the monthly cap.
ance Sheet that were issued in May. • Starting in the calendar month of Septem-
Members agreed that, in assessing the appropriate stance ber, roll over at auction the amount of prin-
of monetary policy, they would continue to monitor the cipal payments from the Federal Reserve’s
implications of incoming information for the economic holdings of Treasury securities maturing in
outlook and that they would be prepared to adjust the each calendar month that exceeds a cap of
stance of monetary policy as appropriate in the event $60 billion per month. Redeem Treasury
that risks emerged that could impede the attainment of coupon securities up to this monthly cap
the Committee’s goals. They also concurred that their and Treasury bills to the extent that coupon
assessments would take into account a wide range of in- principal payments are less than the
formation, including readings on public health, labor monthly cap.
market conditions, inflation pressures and inflation ex- • Reinvest into agency mortgage-backed se-
pectations, and financial and international develop- curities (MBS) the amount of principal pay-
ments. Members affirmed that the Committee was ments from the Federal Reserve’s holdings
strongly committed to returning inflation to its 2 percent of agency debt and agency MBS received in
objective. the calendar months of July and August that
At the conclusion of the discussion, the Committee exceeds a cap of $17.5 billion per month.
voted to authorize and direct the Federal Reserve Bank • Starting in the calendar month of Septem-
of New York, until instructed otherwise, to execute ber, reinvest into agency MBS the amount
transactions in the SOMA in accordance with the fol- of principal payments from the Federal Re-
lowing domestic policy directive, for release at 2:00 p.m.: serve’s holdings of agency debt and agency
“Effective July 28, 2022, the Federal Open Mar- MBS received in each calendar month that
ket Committee directs the Desk to: exceeds a cap of $35 billion per month.

• Undertake open market operations as nec- • Allow modest deviations from stated
essary to maintain the federal funds rate in amounts for reinvestments, if needed for
a target range of 2¼ to 2½ percent. operational reasons.

• Conduct overnight repurchase agreement • Engage in dollar roll and coupon swap
operations with a minimum bid rate of transactions as necessary to facilitate settle-
2.5 percent and with an aggregate operation ment of the Federal Reserve’s agency MBS
transactions.”
_____________________________________________________________________________________________
Page 12 Federal Open Market Committee

The vote also encompassed approval of the statement goals. The Committee’s assessments will take
below for release at 2:00 p.m.: into account a wide range of information, in-
cluding readings on public health, labor market
“Recent indicators of spending and production
conditions, inflation pressures and inflation ex-
have softened. Nonetheless, job gains have
pectations, and financial and international de-
been robust in recent months, and the unem-
velopments.”
ployment rate has remained low. Inflation re-
mains elevated, reflecting supply and demand Voting for this action: Jerome H. Powell, John C.
imbalances related to the pandemic, higher food Williams, Michael S. Barr, Michelle W. Bowman, Lael
and energy prices, and broader price pressures. Brainard, James Bullard, Susan M. Collins, Lisa D. Cook,
Esther L. George, Philip N. Jefferson, Loretta J. Mester,
Russia’s war against Ukraine is causing tremen-
and Christopher J. Waller.
dous human and economic hardship. The war
and related events are creating additional up- Voting against this action: None.
ward pressure on inflation and are weighing on
To support the Committee’s decision to raise the target
global economic activity. The Committee is
range for the federal funds rate, the Board of Governors
highly attentive to inflation risks.
of the Federal Reserve System voted unanimously to
The Committee seeks to achieve maximum em- raise the interest rate paid on reserve balances to 2.4 per-
ployment and inflation at the rate of 2 percent cent, effective July 28, 2022. The Board of Governors
over the longer run. In support of these goals, of the Federal Reserve System voted unanimously to ap-
the Committee decided to raise the target range prove a ¾ percentage point increase in the primary
for the federal funds rate to 2¼ to 2½ percent credit rate to 2.5 percent, effective July 28, 2022. 6
and anticipates that ongoing increases in the tar-
It was agreed that the next meeting of the Committee
get range will be appropriate. In addition, the
would be held on Tuesday–Wednesday, September 20–
Committee will continue reducing its holdings
21, 2022. The meeting adjourned at 10:35 a.m. on
of Treasury securities and agency debt and
July 27, 2022.
agency mortgage-backed securities, as described
in the Plans for Reducing the Size of the Federal Notation Vote
Reserve’s Balance Sheet that were issued in By notation vote completed on July 5, 2022, the Com-
May. The Committee is strongly committed to mittee unanimously approved the minutes of the Com-
returning inflation to its 2 percent objective. mittee meeting held on June 14–15, 2022.
In assessing the appropriate stance of monetary
policy, the Committee will continue to monitor
the implications of incoming information for
the economic outlook. The Committee would _______________________
be prepared to adjust the stance of monetary James A. Clouse
policy as appropriate if risks emerge that could Secretary
impede the attainment of the Committee’s

6 In taking this action, the Board approved requests to estab- of July 28, 2022, or the date such Reserve Banks inform the
lish that rate submitted by the boards of directors of the Fed- Secretary of the Board of such a request. (Secretary’s note:
eral Reserve Banks of Boston, New York, Philadelphia, Cleve- Subsequently, the Federal Reserve Banks of St. Louis, Minne-
land, Richmond, Atlanta, Chicago, Dallas, and San Francisco. apolis, and Kansas City were informed of the Board’s approval
This vote also encompassed approval by the Board of Gover- of their establishment of a primary credit rate of 2.5 percent,
nors of the establishment of a 2.5 percent primary credit rate effective July 28, 2022.)
by the remaining Federal Reserve Banks, effective on the later