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But—so I would just say that our—that there are many things that go in, as you know, to, to setting asset prices.

neutral

In the near term, 12-month measures of PCE inflation are expected to move above 2 percent as the very low readings from early in the pandemic fall out of the calculation and past increases in oil prices pass through to consumer energy prices.

hawkish

and inflation rises slowly towards 2 percent.

dovish

So you’re going to have different perspectives from Committee participants about how fast growth will be, how fast the labor market will heal, or how fast—sorry, inflation will move up.

hawkish

The slowdown would reflect factors that were expected to damp the growth of overall business investment spending and a greater saturation of potential computer markets that might lead to more emphasis on replacement demand rather than the further expansion of capacity.

dovish

In the Committee's discussion of current and prospective economic conditions, members focused on the disparate forces that continued to shape trends in economic activity, notably the persist- ence of considerable strength in private domestic spending and the damping influences stemming from foreign economic developments.

neutral

I would say, in the area of commercial real estate, while valuations are high, we are seeing some tightening of lending standards and less debt growth associated with that rise in commercial real estate prices.

hawkish

Although the unemployment rate has declined somewhat since the summer, it remains elevated.

dovish

The associated declines in wealth could amplify the effects on economic activity, which could have further knock-on effects on financial markets.

dovish

With gross retail margins amounting to about 30 percent of sales, a reduction in currently elevated margins could make an important contribution to reduced inflation pressures in consumer goods.

hawkish

Against this backdrop, today the Federal Open Market Committee raised its policy interest rate by ¾ percentage point and anticipates that ongoing increases in that rate will be appropriate.

hawkish

There were more reports that rising wages and benefits and increasing costs of nonlabor inputs could no longer be fully offset by improvements in productivity, and more business firms appeared to be attempting or considering increases in their selling prices to maintain or improve their profit margins.

hawkish

In the United States, evaluating the effects on the economy of shifts in balance sheets and variations in asset prices have been an integral part of the development of monetary policy.

neutral

I think the—you know, in a way, the least tight aspect of it is, is looking at the unemployment rate, which is still below our median estimate of, of [the unemployment rate consistent with] maximum employment.

dovish

Participants' Views on Current Conditions and the Economic Outlook In conjunction with this FOMC meeting, participants submitted their projections of the most likely outcomes for real GDP growth, the unemployment rate, and inflation for each year from 2022 through 2024 and over the longer run based on their individual assessments of appropriate monetary policy, including the path of the federal funds rate.

neutral

Two noted the possibility that sustained high levels of long-term unemployment could result in higher structural unemployment, an outcome that might be forestalled by increased aggregate demand.

dovish

In view of the most recent information on the economy, members agreed that it was appropriate for the post-meeting statement to characterize economic growth as apparently continuing to moderate.

neutral

In real terms, with a 2 percent inflation objective—that’s 1 percent in real terms.

dovish

Although inflation is ultimately a monetary phenomenon, it seems natural to expect, as others have argued, that these developments would have exerted some downward pressure on inflation in the United States.

dovish

Largely as a consequence of rapidly expanding "new economy" investments, gains in productivity had occurred at remarkable rates in recent years.

neutral

We also do see the different measures of slack in the labor market point to different assessments of just what maximum employment is.

neutral

That should drive productivity.

neutral

Participants' Views on Current Conditions and the Economic Outlook In their discussion of the economic situation and the outlook, meeting participants saw the information received over the intermeeting period as suggesting that labor market conditions had improved further in late 2015 even as economic growth slowed.

neutral

That interdependence suggests that monetary policy makers must pay attention to conditions abroad as well as at home.

neutral

Although prospects for economic activity had not deteriorated significantly since the March meeting, the outlook for growth and employment remained weak and slack in resource utilization was likely to increase.

dovish

Higher inflation expectations would in turn lead workers to bargain for commensurate raises in nominal wages to preserve the real value of their earnings.

hawkish

I expect that to continue, and I would expect also to see some improvement in the degree of part-time employment that’s for economic reasons.

dovish

Even before the recent unfortunate developments in the Middle East, demand to augment buffer stocks surged, which has helped to keep prices high.

hawkish

Reinforcing this outlook was recent evidence of somewhat faster than anticipated productivity growth, the prospect that world economic conditions would hold down energy prices, and a sharp drop in near-term inflation expectations of households as reported in recent surveys.

dovish

In particular, a surprise tightening of policy raises the risk premium, lowering current stock prices, and a surprise easing lowers the risk premium, raising current stock prices.

neutral

On March 16, we launched a program to purchase Treasury securities and agency mortgage-backed securities in whatever amounts needed to support smooth market functioning, thereby fostering effective transmission of monetary policy to broader financial conditions.

neutral

In their assessment of factors leading to this decision, the members focused on the further evidence that moderating demand and accelerating productivity were closing the gap between the growth of aggregate demand and potential supply, even before earlier Committee tightening actions had exerted their full restraining effects.

hawkish

But you do see growth in services, so you—this pattern around the world of Chair Powell’s Press Conference FINAL weak manufacturing

neutral

The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators continuing to move toward levels the Committee judges consistent with its dual mandate.

dovish

Although the pace of job losses was moderating, the unusually large fraction of those who were working part time for economic reasons and the unusually low level of the average workweek pointed to only a gradual decline in the unemployment rate as the economic recovery proceeded.

dovish

as a result, headline PCE price inflation was expected to substantially exceed core PCE price inflation in 2008.

neutral

It also affects stock prices.

neutral

By the same token, the effect of the interest rate channel on overall economic activity may be diminished by greater trade integration as changes in domestic demand are offset by induced changes in imports.

neutral

Participants generally expected that, over the medium term, real economic activity would increase at a pace sufficient to lead to a further gradual decline in the unemployment rate toward levels consistent with the Committee's objective of maximum employment.

hawkish

So negative interest rates is something that we looked at during the financial crisis and chose not to do.

neutral

as before, core inflation was projected to be quite subdued at rates below last year's pace.

neutral

To achieve its mandated objectives, the FOMC must influence the course of the U.S. economy, helping it to grow rapidly enough to make full use of available resources but not so rapidly as to stoke inflation.

dovish

Most other interest rates in short-term markets were little changed over the period.

neutral

In April, prices of core goods and services--that is, consumer prices excluding food and energy--were unchanged for a second month.

neutral

Notwithstanding these developments, some participants cautioned that progress toward the Committee's inflation objective should not be overstated

neutral

The staff viewed the extent of uncertainty around its March projections for real GDP growth, the unemployment rate, and inflation as similar to the average over the past 20 years.

neutral

Several participants commented that the factors that had contributed to low inflation during the previous expansion could again exert more downward pressure on inflation than expected.

dovish

At the same time, however, the near-term outlook for inflation had deteriorated, and the risks that underlying inflation pressures could prove to be greater than anticipated appeared to have risen.

hawkish

Required down payments, usually about half of the home's purchase price, excluded many households from the market.

neutral

Or the 1990s could be used as an illustration of how monetary policy could lower inflation, with concomitant gains in terms of full employment and long-term economic growth.

hawkish

While bank lending continues to contract, financial market conditions remain supportive of economic growth.

neutral

With regard to the outlook for inflation, members gave considerable attention to the somewhat faster increases in broad price measures over the past year,

hawkish

Indeed, in the interest of fostering a continuation of sustainable growth of the economy, it would be desirable to tighten before any sign of actual higher inflation were to become evident.

hawkish

With tight labor markets and little slack in product markets, we are led to conclude that significant persistent strength in the growth of nominal demand for goods and services, outstripping the likely rate of increase in capacity, will presumably be resisted by higher market interest rates.

hawkish

We include these types of price terms today in our forecasting equations, and they are important to forming our views of the inflation outlook and thus to the policy process.

neutral

Rather, members agreed that inflation was likely to moderate in coming quarters,

hawkish

Private investors would have to hold more longer-term securities as the Federal Reserve's holdings ran off, making longer-term interest rates somewhat higher than they would be otherwise.

hawkish

To some, the continued subdued trend in wages was evidence of an absence of upward pressure on inflation from current levels of labor utilization.

dovish

” The vote encompassed approval of the text below for inclusion in the statement to be released at 2:15 p. m. : “In these circumstances, the Committee’s predominant policy concern remains the risk that inflation will fail to moderate as expected.

hawkish

Of course, we’re ready to provide information that Congress needs to evaluate the Fed’s decisionmaking, in monetary policy and elsewhere.

neutral

Moreover, most members saw substantial downside risks to the economic outlook and judged that a rate reduction at this meeting would provide valuable additional insurance against an unexpectedly severe weakening in economic activity.

dovish

So it’s a serious economic problem for the United States, but it’s—it’s got underlying causes that are not related to monetary policy or to our response to the pandemic.

neutral

Obviously, productivity growth generated through this rationalization process will not have the direct demand-augmenting effect of productivity increases realized through more rapid investment spending.

neutral

Nonetheless, the potential for significant further weakening in housing activity and home prices represented a downside risk to the economic outlook.

dovish

U.S. monetary policy responded to these global "headwinds," helping stave off actual contractions of U.S. activity.

dovish

Moving to such a system would require assigning monetary policy to the task of targeting exchange rates, and countries are free to do so if they wish.

neutral

Certainly, if we are to remain preeminent in transforming knowledge into economic value, the U.S. system of higher education must remain the world's leader in generating scientific and technological breakthroughs and in preparing workers to meet the evolving demands for skilled labor.

neutral

Despite a recent uptick in consumer prices, year-over-year consumer inflation remained at a very low level.

dovish

Participants commented that demand for labor continued to outstrip available supply across many parts of the economy and that their business contacts continued to report difficulties in hiring and retaining workers.

neutral

Energy prices were moderating noticeably in response to lower worldwide demand, and core price inflation remained subdued.

dovish

With regard to the federal sector, spending related to last year’s hurricanes appeared likely to abate, and federal expenditures overall would probably be providing less impetus to aggregate demand going forward.

dovish

In contrast, some other participants judged that the economy had not yet reached maximum employment.

dovish

This change has led many governments to be more willing to adopt institutional changes to improve central bank governance that have bolstered central bank credibility for maintaining low inflation.

hawkish

By getting unemployment down, we hope to bring back to work some of the people who’ve been out of work as long as they have and, in that respect, try to avoid the longer-term consequences of people being out of work for months at a time.

dovish

The significant decreases that had occurred in the prices of fuel oil and gasoline were a positive factor that would continue to bolster household spending for a while.

neutral

Many noted that the slowdown could be a temporary aberration and that other labor market indicators--such as new claims for unemployment insurance, the rate of job openings, and readings on consumers' perceptions of the labor market--remained positive.

neutral

Even with generous allowances for structural change, labor utilization would seem to be at a level that might eventually begin to put persistent and growing pressure on labor costs and prices.

hawkish

The external sector was projected to continue to support domestic economic activity throughout the forecast period.

neutral

In addition to directly affecting longer-term interest rates, changes to the balance sheet could serve to reinforce policy communication associated with the short-term rate.

neutral

Productivity is a cyclical variable that typically falls in recessions.

neutral

Overall, though shifts in business attitudes are difficult to measure, I believe that markets reward businesses that outperform their competitors and that, as demand picks up, companies will respond to opportunities to incorporate technological advances in production, communication, and organization.

neutral

The more inflation rose, the more people came to expect it to remain high, and they built that belief into wage and pricing decisions.

hawkish

The evidence suggests that new technology often results in more growth in employment in innovating industries.

neutral

Indeed, just recently, the National Bureau of Economic Research's Business Cycle Dating Committee determined that the recession that began in March of last year ended in April, making it not only the deepest recession on record, but also the briefest.2 Moreover, with the development and distribution of several remarkably effective vaccines, the monetary and fiscal policies presently in place should continue to support the strong expansion in economic activity that is expected to be realized this year, although, obviously, the rapid spread of the Delta variant among the still considerable fraction of the population that is unvaccinated is clearly a downside risk for the outlook.

dovish

Consumer sentiment remains solid, and the employment picture is positive.

hawkish

Readings on consumer price inflation had picked up somewhat mainly because of increases in oil and gasoline prices earlier in the year.

hawkish

Pursuant to the Committee's instructions in March, the staff had activated its study of the possible employment of mortgage-backed securities guaranteed by the Government National Mortgage Association (Ginnie Maes) in outright System open market operations.

neutral

Participants agreed to continue to explore ways to increase transparency and clarity in the Committee's policy communications, and they indicated a willingness to look into modifications to the SEP. At the end of the discussion, the Chairman asked the subcommittee on communications to explore potential approaches to providing more information about the Committee's collective judgment regarding the economic outlook and appropriate monetary policy through the SEP.

neutral

Operating Strategies and the FOMC Meeting Now that we appreciate the challenging nature of monetary policy, we are ready to develop a strategy for implementing open market operations.

neutral

Business spending on equipment and structures was anticipated to continue to outpace the overall expansion of the economy, though the differential would tend to narrow over time in association with the gradual diminution of increases in sales and profits that was expected to be associated with moderating economic growth.

neutral

The unemployment rate was unchanged over the period between the April and June meetings,

neutral

Global factors may have put downward pressure on term premiums because of anxiety about the foreign outlook, which may have increased demand for U.S. assets, or because low rates abroad have depressed U.S. term premiums through a global portfolio balance channel.5 And real rates are quite low globally, reflecting the step-down of productivity growth over the past 10 years as well as shifts in savings and investment demand due to demographic change.6 The Core of the Financial System Is Much Stronger Before turning to the interplay between low rates and the financial system, I will simply point out that both improved risk management at the largest, most systemically important financial institutions (SIFIs) and stronger regulation have made the core of the system much stronger and more resilient than before the crisis.7 The SIFIs have more stable funding, hold much more capital and liquidity, are more conscious of their risks, and are far more resolvable should they fail.

neutral

The growth of domestic nonfinancial debt slowed in October (latest data), reflecting a larger further paydown of federal debt and a reduced pace of private borrowing.

neutral

In addition, the forecast for headline PCE price inflation incorporated a much higher rate of increase for energy prices for the first half of the year

hawkish

But before I comment on productivity, I'd like to begin with a review of recent economic developments.

neutral

However, a few other participants pointed to the record of inflation consistently running below the Committee's 2 percent objective over recent years and expressed the concern that longer-run inflation expectations may have slipped below levels consistent with that objective.

dovish

As was highlighted by the Bureau of Labor Statistics, this figure likely understates the extent of unemployment; accounting for the unusually large number of workers who reported themselves as employed but absent from their jobs would raise the unemployment rate by about 3 percentage points.

dovish

Thus, avoiding a further substantial fall in inflation should be a priority of monetary policy.

dovish

The recent strains in financial markets posed additional downside risks to economic growth.

dovish

And I’ll discuss the thinking behind today’s interest rate reduction and then turn to the path forward.

dovish