May 10, 2022
Despite the fact that overall economic activity fell in the first quarter, consumer expenditure and company fixed investment remained solid. In recent months, job growth has been strong, and the unemployment rate has dropped significantly. Inflation is still high, owing to supply and demand mismatches caused by the pandemic, as well as increasing energy prices and broader pricing pressures.
Russia’s invasion of Ukraine is wreaking havoc on people and businesses. The consequences for the US economy are extremely unpredictable. The invasion and related events are increasing inflationary pressures and are expected to dampen economic growth. Furthermore, COVID-related supply chain disruptions in China are likely to worsen. The Federal Open Market Committee is very concerned about inflation risks.
Over the long run, the Committee aims for maximum employment and 2% inflation. The Committee anticipates inflation to return to its target of 2% with appropriate tightening of monetary policy, and the labor market to continue solid. In order to achieve these objectives, the Committee agreed to raise the federal funds rate target range to 3/4 to 1%, with the expectation that future increases will be appropriate. Furthermore, on June 1, the Committee decided to begin lowering its holdings of Treasury securities, agency debt, and agency mortgage-backed securities, as stated in the Plans for Reducing the Size of the Federal Reserve’s Balance Sheet that was released in conjunction with the announcement.
Source: BOARD OF GOVERNORS of the FEDERAL RESERVE SYSTEM
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