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Financial markets responded to significant new information about the economy and monetary policy, as well as the emergence of the Omicron ... 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ThomasI.Barkin RaphaelW.Bostic MichelleW.Bowman LaelBrainard RichardH.Clarida MaryC.Daly CharlesL.Evans RandalK.Quarles ChristopherJ.Waller JamesBullard,EstherL.George,NaureenHassan,LorettaJ.Mester,andKennethC.Montgomery,AlternateMembersoftheCommittee PatrickHarkerandNeelKashkari,PresidentsoftheFederalReserveBanksofPhiladelphiaandMinneapolis,respectively MeredithBlack,InterimPresidentoftheFederalReserveBankofDallas JamesA.Clouse,Secretary MatthewM.Luecke,DeputySecretary MichelleA.Smith,AssistantSecretary MarkE.VanDerWeide,GeneralCounsel MichaelHeld,DeputyGeneralCounsel TrevorA.Reeve,Economist StaceyTevlin,Economist BethAnneWilson,Economist ShaghilAhmed,DavidAltig,KartikB.Athreya,BrianM.Doyle,2RochelleM.Edge,SylvainLeduc,AnnaPaulson,andWilliamWascher,AssociateEconomists LorieK.Logan,Manager,SystemOpenMarketAccount PatriciaZobel,DeputyManager,SystemOpenMarketAccount AnnE.Misback,Secretary,OfficeoftheSecretary,Board MatthewJ.Eichner,3Director,DivisionofReserveBankOperationsandPaymentSystems,Board;MichaelS.Gibson,Director,DivisionofSupervisionandRegulation,Board;AndreasLehnert,Director,DivisionofFinancialStability,Board SallyDavies,DeputyDirector,DivisionofInternationalFinance,Board;MichaelT.Kiley,DeputyDirector,DivisionofFinancialStability,Board JonFaustandJoshuaGallin,SeniorSpecialAdviserstotheChair,DivisionofBoardMembers,Board WilliamF.Bassett,AntulioN.Bomfim,BurcuDuygan-Bump,JaneE.Ihrig,KurtF.Lewis,ChiaraScotti,andNitishR.Sinha,SpecialAdviserstotheBoard,DivisionofBoardMembers,Board LindaRobertson,AssistanttotheBoard,DivisionofBoardMembers,Board DavidLópez-SalidoandMinWei,SeniorAssociateDirectors,DivisionofMonetaryAffairs,Board;JohnJ.Stevens,SeniorAssociateDirector,DivisionofResearchandStatistics,Board;PaulR.Wood,4SeniorAssociateDirector,DivisionofInternationalFinance,Board EdwardNelsonandAnnetteVissing-Jørgensen,SeniorAdvisers,DivisionofMonetaryAffairs,Board;JeremyB.Rudd,SeniorAdviser,DivisionofResearchandStatistics,Board EricC.EngstromandElizabethK.Kiser,AssociateDirectors,DivisionofResearchandStatistics,Board;ChristopherJ.Gust,AssociateDirector,DivisionofMonetaryAffairs,Board;JeffreyD.Walker,3AssociateDirector,DivisionofReserveBankOperationsandPaymentSystems,Board NormanJ.Morin,DeputyAssociateDirector,DivisionofResearchandStatistics,Board;ZeynepSenyuz3andRebeccaZarutskie,DeputyAssociateDirectors,DivisionofMonetaryAffairs,Board BrianJ.Bonis,EtienneGagnon,3andDanLi,AssistantDirectors,DivisionofMonetaryAffairs,Board;PaulLengermann,AssistantDirector,DivisionofResearchandStatistics,Board AlyssaG.Anderson,SectionChief,DivisionofMonetaryAffairs,Board;PenelopeA.Beattie,2SectionChief,OfficeoftheSecretary,Board CamilleBryan,SeniorProjectManager,DivisionofMonetaryAffairs,Board DavidH.Small,ProjectManager,DivisionofMonetaryAffairs,Board RandallA.Williams,GroupManager,DivisionofMonetaryAffairs,Board JonathanE.Goldberg,3SebastianInfante,andFranciscoVazquez-Grande,PrincipalEconomists,DivisionofMonetaryAffairs,Board JamesHebden3andJamesM.Trevino,3LeadTechnologyAnalysts,DivisionofMonetaryAffairs,Board ZinaBushraSaijid,3SeniorFinancialAnalyst,DivisionofInternationalFinance,Board IsaiahC.Ahn,InformationManagementAnalyst,DivisionofMonetaryAffairs,Board BeckyC.Bareford,FirstVicePresident,FederalReserveBankofRichmond JosephW.GruberandGeoffreyTootell,ExecutiveVicePresidents,FederalReserveBanksofKansasCityandBoston,respectively DavidAndolfatto,AnneBaum,ToddE.Clark,MarcGiannoni,MarkL.J.Wright,and,NathanielWuerffel,3SeniorVicePresidents,FederalReserveBanksofSt.Louis,NewYork,Cleveland,Dallas,Minneapolis,andNewYork,respectively RocArmenter,KathrynB.Chen,3JonathanP.McCarthy,andMatthewD.Raskin,3VicePresidents,FederalReserveBanksofPhiladelphia,NewYork,NewYork,andNewYork,respectively RobertLerman3andJamiePfeifer,3AssistantVicePresidents,FederalReserveBankofNewYork LinseyMolloy3QuantitativePolicyandAnalysisManager,FederalReserveBankofNewYork DevelopmentsinFinancialMarketsandOpenMarketOperations Themanagerturnedfirsttoadiscussionoffinancialmarketdevelopmentsovertheperiod.Financialmarketsrespondedtosignificantnewinformationabouttheeconomyandmonetarypolicy,aswellastheemergenceoftheOmicronvariant.Overall,domesticfinancialconditionstightenedmodestlybutremainednearhistoricallyaccommodativelevels.ExpectationsforanearlierreductioninFederalReservepolicyaccommodationliftedshort-terminterestratesandsupportedthedollar.WhilepricesofequitiesthataresensitivetoCOVID-19risksdeclinedsignificantly,theS&P500indexwaslittlechanged. Overtheperiod,marketparticipantsconsideredpotentialdriversofthenotabledeclineinfar-forwardsovereignyieldsintheUnitedStatesandotheradvancedeconomies.NewsoftheOmicronvariantreportedlydrovesafe-havenflowsintosovereignbonds,pushingtermpremiumslower.Thesignificantco-movementbetweenfar-forwardyieldsandthesharepricesoffirmsmostaffectedbysocialdistancingwasconsistentwiththisinterpretation.Inadditiontotheeffectsofthepandemiconrisksentiment,somediscussedthepotentialforCOVIDtobecomeendemic,possiblyresultinginmodestlylowerpotentialgrowthovertimeandalowerlong-runneutrallevelofthefederalfundsrate. RegardingtheoutlookforU.S.monetarypolicy,expectationsforareductioninpolicyaccommodationshiftedforwardnotably.RespondentstotheOpenMarketDesk'ssurveysofprimarydealersandmarketparticipantsbroadlyprojectedthattheCommitteewouldquickenthepaceofreductionintheFederalReserve'snetpurchasesofTreasurysecuritiesandagencymortgage-backedsecurities(MBS),andthemedianrespondentprojectednetassetpurchasestoendinMarch2022.Themedianrespondent'sprojectedtimingforthefirstincreaseinthetargetrangeforthefederalfundsratealsomovedearlierfromthefirstquarterof2023toJune2022. AlthoughtheDesksurveysandinterestratefuturesindicatedexpectationsforearlierincreasesinthetargetrangethanatthetimeoftheNovembermeeting,expectationsforthefederalfundsrateatlongerhorizonsdidnotappeartohaverisen.Inaddition,theaverageofprobabilitydistributionsforthefederalfundsratereportedintheDesksurveyssuggestedconsiderableuncertaintyaboutthepathofthefederalfundsrate,assurveyrespondentsplacedsignificantoddsonarangeofoutcomes.Withthelikelytimingofthebeginningoftheremovalofpolicyaccommodationconsideredcloser,marketparticipantsbegantodiscusshowbalancesheetpolicymightfeatureintheCommittee'splanforreducingaccommodationwhenwarranted,althoughexpectationsforthetimingofthefirstdeclineinthebalancesheetwerediffuse. Themanagerturnednexttoadiscussionofforeigndevelopments.Foreignpolicy-sensitiverateswererelativelysteadyovertheintermeetingperiod,asseveralcentralbanksinadvancedforeigneconomies(AFEs)signaledsomewhatcautiousapproachestotheremovalofpolicyaccommodation.MarketparticipantscontinuedtofocusonrisksrelatedtoeconomicandfinancialdevelopmentsinChina,thoughnear-termconcernshadmoderatedsomefollowingstepsbyChineseauthoritiestoeasepolicy. TurningtoDeskoperationsandmoneymarkets,themanagernotedthattheDeskhadreducednetpurchasesofTreasurysecuritiesandagencyMBSinaccordancewiththedirectiveissuedattheNovembermeeting.Overall,thetransitiontoaslowerpaceofpurchaseshadgonesmoothly.Inmoneymarkets,newsthatapathhademergedtoaresolutionofthedebtceilingimpasseledyieldsonTreasurybillsmaturinginDecemberandJanuarytodecline.Followingtheresolution,theTreasurywasexpectedtoincreasebillissuancetorestoretheTreasuryGeneralAccounttomorenormallevels.Marketparticipantsgenerallywerenotanticipatingsignificantstrainsinmoneymarketconditionsoveryearend. Indiscussingrecentlyestablishedbackstopfacilities,themanagernotedcontinuedprogresstowardsexpandingaccesstothestandingrepurchaseagreement(repo)facility(SRF)todepositoryinstitutions;anumberofinstitutionswerecurrentlyintheprocessofbecomingSRFcounterparties.TheFederalReservealsocontinuedtoonboardnewcounterpartiesfortheForeignandInternationalMonetaryAuthoritiesRepoFacility,andcustomerstothefacilitynowrepresentedthemajorityofforeignandinternationalmonetaryauthorities'custodyholdingsofTreasurysecuritiesattheFederalReserveBankofNewYork.ThetemporarydollarliquidityswaplinesestablishedinMarch2020weresettoexpireonDecember31;theCommittee'sforeigncurrencydirectivewouldbeupdatedattheJanuarymeetingtoreflecttheexpirationofthoselines. Finally,themanagerprovidedanupdateonthetransitionawayfromLIBOR(Londoninterbankofferedrate).Overall,considerableprogresshadbeenmadeinthetransitionawayfromLIBORtotheSecuredOvernightFinancingRate(SOFR)incashandderivativesmarkets.However,afewkeyareasofworkremained. Byunanimousvote,theCommitteeratifiedtheDesk'sdomestictransactionsovertheintermeetingperiod.TherewerenointerventionoperationsinforeigncurrenciesfortheSystem'saccountduringtheintermeetingperiod. DiscussionofPolicyNormalizationConsiderations Participantsbeganadiscussionofarangeoftopicsassociatedwiththeeventualnormalizationofthestanceofmonetarypolicy.ThetopicsincludedthelessonslearnedfromtheCommittee'spreviousexperiencewithpolicynormalization,alternativeapproachesforremovingpolicyaccommodation,thetimingandsequencingofpolicynormalizationactions,andtheappropriatesizeandcompositionoftheFederalReserve'sbalancesheetinthelongerrun.TheyagreedthattheirdiscussionatthismeetingwouldbehelpfulbackgroundfortheCommittee'sfuturedecisionsregardingpolicynormalization.NodecisionsregardingtheCommittee'sapproachweremadeatthemeeting. Theparticipants'discussionwasprecededbystaffpresentations.Thestaffreviewedthepreviousnormalizationepisode,includinghowtheCommitteecommencednormalizationbyraisingthetargetrangeforthefederalfundsrateandthenreducingtheFederalReserve'sassetholdingsinagradualandpredictablemanner,aswellasthetimingofthesesteps.ThestaffthendiscussedsomeofthechannelsthroughwhichpolicyrateandbalancesheetactionsaffectfinancialconditionsandalternativewaysthesetoolscouldbedeployedtoreducepolicyaccommodationinsupportoftheCommittee'smacroeconomicgoals.Thestaffpresentationincludedassessmentsoftheimplicationsfortheyieldcurveofalternativesettingsofthetwotools,therelativeuncertaintyoftheeffectsofeachtool,andthechallengesassociatedwithconductingandcommunicatingpolicywithmultipletools.Finally,thestaffreviewedtheexperienceofforeigncentralbankswithpolicynormalization. Participantsjudgedthatseveralaspectsofthepreviousapproachremainedapplicableinthecurrentenvironment.Inparticular,theynotedthattheprinciplesandplansunderlyingpolicynormalizationwerecommunicatedinadvanceofanydecisionsoractions,whichenhancedthepublic'sunderstandingandthustheeffectivenessofmonetarypolicyduringthatperiod.Atthesametime,participantsremarkedthatthepreviousexperiencehighlightedthebenefitsofmaintainingtheflexibilitytoadjustthedetailsoftheapproachtonormalizationinresponsetoeconomicandfinancialdevelopments.Participantsgenerallyemphasizedthat,asinthepreviousnormalizationepisodeandasexpressedintheCommittee'sStatementonLonger-RunGoalsandMonetaryPolicyStrategy,changesinthetargetrangeforthefederalfundsrateshouldbetheCommittee'sprimarymeansforadjustingthestanceofmonetarypolicyinsupportofitsmaximum-employmentandprice-stabilityobjectives.ThispreferencereflectedtheviewthatthereislessuncertaintyabouttheeffectsofchangesinthefederalfundsrateontheeconomythanabouttheeffectsofchangesintheFederalReserve'sbalancesheet.Moreover,participantsstatedthatthefederalfundsrateisamorefamiliartooltothegeneralpublicandthereforeisadvantageousforcommunicationpurposes.Afewparticipantsalsonotedthatwhenthefederalfundsrateisawayfromtheeffectivelowerbound(ELB),theCommitteecouldmorenimblychangeinterestratepolicythanbalancesheetpolicyinresponsetoeconomicconditions. ParticipantsalsodiscussedsomekeydifferencesbetweencurrenteconomicconditionsandthosethatprevailedduringthepreviousepisodeandremarkedthattheCommitteewouldhavetotakethesedifferencesintoaccountinremovingpolicyaccommodation.Mostnotably,participantsremarkedthatthecurrenteconomicoutlookwasmuchstronger,withhigherinflationandatighterlabormarketthanatthebeginningofthepreviousnormalizationepisode.TheyalsoobservedthattheFederalReserve'sbalancesheetwasmuchlarger,bothindollartermsandrelativetonominalgrossdomesticproduct(GDP),thanitwasattheendofthethirdlarge-scaleassetpurchaseprograminlate2014.ParticipantsnotedthatthecurrentweightedaveragematurityoftheFederalReserve'sTreasuryholdingswasshorterthanatthebeginningofthepreviousnormalizationepisode.Someobservedthat,asaresult,dependingonthesizeofanycapsputonthepaceofrunoff,thebalancesheetcouldpotentiallyshrinkfasterthanlasttimeiftheCommitteefolloweditspreviousapproachinphasingoutthereinvestmentofmaturingTreasurysecuritiesandprincipalpaymentsonagencyMBS.However,severalparticipantsraisedconcernsaboutvulnerabilitiesintheTreasurymarketandhowthosevulnerabilitiescouldaffecttheappropriatepaceofbalancesheetnormalization.AcoupleofparticipantsnotedthattheSRFcouldhelptomitigatesuchconcerns.ParticipantsalsojudgedtheFederalReservetobebetterpositionedfornormalizationthaninthepast,astheample-reservesframeworkandtheFederalReserve'scurrentinterestratecontroltools,includinginterestonreservebalancesandtheovernightreverserepurchaseagreement(ONRRP)facility,areinplaceandworkingwell.Someparticipantsjudgedthatasignificantamountofbalancesheetshrinkagecouldbeappropriateoverthenormalizationprocess,especiallyinlightofabundantliquidityinmoneymarketsandelevatedusageoftheONRRPfacility. ParticipantshadaninitialdiscussionabouttheappropriateconditionsandtimingforstartingbalancesheetrunoffrelativetoraisingthefederalfundsratefromtheELB.Theyalsodiscussedhowthisrelativetimingmightdifferfromthepreviousexperience,inwhichbalancesheetrunoffcommencedalmosttwoyearsafterpolicyrateliftoffwhenthenormalizationofthefederalfundsratewasjudgedtobewellunderway.Almostallparticipantsagreedthatitwouldlikelybeappropriatetoinitiatebalancesheetrunoffatsomepointafterthefirstincreaseinthetargetrangeforthefederalfundsrate.However,participantsjudgedthattheappropriatetimingofbalancesheetrunoffwouldlikelybeclosertothatofpolicyrateliftoffthanintheCommittee'spreviousexperience.Theynotedthatcurrentconditionsincludedastrongereconomicoutlook,higherinflation,andalargerbalancesheetandthuscouldwarrantapotentiallyfasterpaceofpolicyratenormalization.Theyemphasizedthatthedecisiontoinitiaterunoffwouldbedatadependent. Someparticipantscommentedthatremovingpolicyaccommodationbyrelyingmoreonbalancesheetreductionandlessonincreasesinthepolicyratecouldhelplimityieldcurveflatteningduringpolicynormalization.Afewoftheseparticipantsraisedconcernsthatarelativelyflatyieldcurvecouldadverselyaffectinterestmarginsforsomefinancialintermediaries,whichmayraisefinancialstabilityrisks.However,acoupleofotherparticipantsreferencedstaffanalysisandpreviousexperienceinnotingthatmanyfactorscanaffectlonger-datedyields,makingitdifficulttojudgehowadifferentpolicymixwouldaffecttheshapeoftheyieldcurve. Manyparticipantsjudgedthattheappropriatepaceofbalancesheetrunoffwouldlikelybefasterthanitwasduringthepreviousnormalizationepisode.Manyparticipantsalsojudgedthatmonthlycapsontherunoffofsecuritiescouldhelpensurethatthepaceofrunoffwouldbemeasuredandpredictable,particularlygiventheshorterweightedaveragematurityoftheFederalReserve'sTreasurysecurityholdings. Participantsdiscussedconsiderationsregardingthelonger-runsizeofthebalancesheetconsistentwiththeefficientandeffectiveimplementationofmonetarypolicyinanample-reservesregime.Participantsnotedthatthecurrentsizeofthebalancesheetiselevatedandwouldlikelyremainsoforsometimeaftertheprocessofnormalizingthebalancesheetwasunderway.Severalparticipantsnotedthatthelevelofreservesthatwouldultimatelybeneededtoimplementmonetarypolicyeffectivelyisuncertain,becausetheunderlyingdemandforreservesbybanksistimevarying.InlightofthisuncertaintyandtheCommittee'spreviousexperience,acoupleofparticipantsexpressedapreferencetoallowforasubstantialbufferlevelofreservestosupportinterestratecontrol.ParticipantsnotedthatitwouldbeimportanttocarefullymonitordevelopmentsinmoneymarketsasthelevelofreservesfelltohelpinformtheCommittee'seventualassessmentoftheappropriatelevelforthebalancesheetinthelongerrun.SomeparticipantsexpressedtheviewthattheSRFwouldhelpensureinterestratecontrolasthesizeofthebalancesheetapproacheditslonger-runlevel;severalparticipantsnotedthattheSRFcouldfacilitateafasterrunoffofthebalancesheetthanmightotherwisebethecase;severalparticipantsraisedthepossibilitythattheestablishmentoftheSRFcouldreducethedemandforreservesinthelongerrun,suggestingthatthelonger-runbalancesheetcouldbesmallerthanotherwise. ParticipantsalsodiscussedthecompositionoftheFederalReserve'sassetholdings.Consistentwiththepreviousnormalizationprinciples,someparticipantsexpressedapreferencefortheFederalReserve'sassetholdingstoconsistprimarilyofTreasurysecuritiesinthelongerrun.Toachievesuchacomposition,someparticipantsfavoredreinvestingprincipalfromagencyMBSintoTreasurysecuritiesrelativelysoonorlettingagencyMBSrunoffthebalancesheetfasterthanTreasurysecurities. Participantswelcomedadditionalanalysisfromthestaffonissuesrelatedtonormalizationandagreedthatcontinuingtheirdeliberationsatupcomingmeetingswouldbeuseful. StaffReviewoftheEconomicSituation TheinformationavailableatthetimeoftheDecember14–15meetingsuggestedthatU.S.realGDPgrowthwaspickingupinthefourthquarterafterhavingslowedinthethirdquarter.LabormarketconditionscontinuedtoimproveinOctoberandNovember,andmeasuresofcompensationhadrisensharplysofarthisyear.ConsumerpriceinflationthroughOctober—asmeasuredbythe12-monthpercentagechangeinthepriceindexforpersonalconsumptionexpenditures(PCE)—remainedelevated. Totalnonfarmpayrollemploymentrosesolidly,onaverage,inOctoberandNovember,buttheaveragegainwasbelowthatseeninrecentquarters.Theunemploymentratedeclinedfrom4.8percentinSeptemberto4.2percentinNovember;theunemploymentratesforAfricanAmericansandHispanicsalsodeclinedsubstantiallyoverthisperiod,butbothratesremainedwellabovethenationalaverage.Thelaborforceparticipationrateandtheemployment-to-populationratiobothmovedupinNovember.Private-sectorjobopenings,asmeasuredbytheJobOpeningsandLaborTurnoverSurvey,remainedwellabovepre-pandemiclevels;quitsratesalsostayedelevateddespiteedgingdowninOctober.Thefour-weekmovingaverageofinitialclaimsforregularstateunemploymentinsurancemovedlowerthroughearlyDecemberandwasatalevelsimilartothatseenbeforethepandemic.Recentweeklyestimatesofprivate-sectorpayrollsconstructedbytheBoard'sstaffusingdataprovidedbythepayrollprocessorADPpointedtoafurtherincreaseinprivateemploymentthroughearlyDecember.Averagehourlyearningsrose4.8percentoverthe12monthsendinginNovember,withsizablewagegainsobservedacrossmostsectors. Inflationreadingsremainedhigh,andvariousindicatorssuggestedthatinflationarypressureshadbroadenedinrecentmonths.TotalPCEpriceinflationwas5.0percentoverthe12monthsendinginOctober,andcorePCEpriceinflation,whichexcludeschangesinconsumerenergypricesandmanyconsumerfoodprices,was4.1percentoverthesameperiod.Thetrimmedmeanmeasureof12-monthPCEinflationconstructedbytheFederalReserveBankofDallaswas2.6percentinOctober,anincreaseof0.6percentagepointrelativetotwomonthsearlier.InNovember,the12-monthchangeintheconsumerpriceindex(CPI)was6.8percent,whilecoreCPIinflationwas4.9percentoverthesameperiod.Survey-basedmeasuresofmedium-andlonger-runinflationexpectations—includingthosefromtheUniversityofMichiganSurveysofConsumers,theFederalReserveBankofNewYork'sSurveyofConsumerExpectations,andtheSurveyofProfessionalForecasters—leveledoffafterhavingrisenoverthepastyear. RealPCEgrowthappearedtobepickingupinthefourthquarterdespiteanupturninCOVID-19cases,thewaningeffectofpreviousfiscalstimulusmeasures,lingeringsupplybottlenecks,andrecentincreasesinconsumerprices.Inparticular,realexpendituresonretailgoodsrosesolidlyagaininOctober,andoutlaysforservicesstrengthened.InNovember,however,thecomponentsofthenominalretailsalesdatausedtoestimatePCEsteppeddown,possiblyreflectingsomeholidaysaleshavingbeenpulledforwardtoOctober.LightmotorvehiclesalesinOctoberandNovemberwerebelowtheirthird-quarteraverage(thoughtheywereup,onnet,relativetoSeptember),asextremelylowdealerinventoriescontinuedtoconstrainsales.Housingdemandremainedstrong,butindicatorsofhousing-sectoractivity,includinghousingstartsandhomesales,weregenerallylittlechangedinOctober.Shortagesofconstructionmaterialsappearedtohavehamperedbuildingcompletions,andtherewaslimitedavailabilityoflotsreadyforconstruction. Growthinbusinessfixedinvestmentappearedtoberisingataslowpaceagaininthefourthquarter,assupplybottleneckscontinuedtoweighonbusinessequipmentspending,andthelimitedavailabilityofconstructionmaterialswasstillholdingbackspendingonnonresidentialstructures. ManufacturingoutputincreasedinOctober,andavailableindicatorsofproductionwereconsistentwithanothergaininNovember.MotorvehicleoutputmovedupinOctoberfromitslowlevelinSeptember,asmostassemblyplantspreviouslyshutteredbysemiconductorchipshortageshadreopened.Outsideofmotorvehicles,manufacturingproductionalsoroseinOctober,partlyreflectingthecontinuedrecoveryfromtheeffectsofHurricaneIdaontheoutputofthepetrochemical,refining,andplasticresinsindustries. Totalrealgovernmentpurchasesappearedtoberisingmoderatelyagaininthefourthquarter.Federaldefensespendingrose,onnet,inOctoberandNovemberrelativetothethirdquarter.However,growthinstateandlocalgovernmentpurchasesappearedtobemoderating,aspayrollsdecreasedinOctoberandNovember,andnominalstateandlocalconstructionexpendituresinOctoberwereonlyalittleabovetheirthird-quarterlevel. AfterreachingarecordlevelinSeptember,theU.S.internationaltradedeficitnarrowedinOctober,reflectingalargereboundinexports.Theexportreboundwasbroadbased,withsizableincreasesinrealexportsofindustrialsupplies,capitalgoods,agriculturalproducts,andconsumergoods.Exportsofautomotiveproductsalsopickedupafterhavingbeenlowinrecentmonths.RealimportswerelittlechangedinOctober,withincreasesinimportsofautomotiveproductsandconsumergoodsoffsetbyadeclineinindustrialsupplies.Shippingcongestionandotherbottleneckscontinuedtorestrainoveralltradeingoods.ExportsandimportsofservicesedgedupinOctoberbutremainedlowrelativetopre-pandemiclevels,largelybecauseinternationaltravelwasstilldepressed. Incomingdatawereconsistentwithapickupinforeigneconomicgrowthinthecurrentquarter,drivenmainlybythereopeningofAsianeconomiesfollowinglockdownsearlierintheyeartocontainaresurgenceofCOVID-19cases.Stronggainsinintra-Asiantradeandsolidreadingsofpurchasingmanagersindexesalsoprovidedsomeearlysignsthatproductionbottlenecksintheregionwereeasing.Incontrast,theintroductionofnewpublichealthrestrictionsinEuropeinresponsetoanewwaveofCOVID-19infectionsappearedtohaverestrainedeconomicactivityinsomeEuropeaneconomies.Morerecently,thedetectionandrapidspreadoftheOmicronvariantpromptednewinternationaltravelrestrictionsinmanyforeigneconomies.Inflationabroadcontinuedtorise,mostlydrivenbyfurtherincreasesinretailenergyandfoodprices.Inaddition,costpressuresfrompersistentbottlenecksinsupplyandtransportationwerereflectedinrecord-highinputandoutputpricecomponentsofthepurchasingmanagersindexes. StaffReviewoftheFinancialSituation Overtheintermeetingperiod,risinginflationandFOMCcommunicationsappearedtohaveputsubstantialupwardpressureonshorter-datedTreasuryyields.Evenso,longer-datedTreasuryyieldsdeclined,onnet,inpartreflectingrenewedconcernsamongmarketparticipantsaboutthecourseofthepandemicandassociatedsafe-havenflows.Pandemic-relatedfearsaswellasconcernsaboutinflationandtightermonetarypolicyapparentlyweighedonriskyassetpricesdespitecontinuedrobusteconomicdata.Indomesticmarkets,broadequitypriceindexeswerelittlechanged,equitymarketvolatilityincreasedmarkedly,andspreadsoncorporatebondswidenedmoderately.InAFEs,sovereignyieldsdeclined,andmajorequityindexesedgeddown.Short-termfundingmarketswerestable,whileparticipationintheONRRPfacilityincreasedfurther.Overall,financingconditionsforbusinessesandhouseholdsremainedaccommodativeexceptforsmallbusinessesandnonprimeborrowers. Marketparticipants'viewsontheexpectedpathforthefederalfundsrate—asimpliedbyastraightreadofovernightindexswapquotes—suggestedthattheyhadpulledforwardexpectedrateincreasesmoreinto2022and2023comparedwiththetimingtheyanticipatedatthetimeofthepreviousFOMCmeeting.Thepotentialforalessaccommodativepolicystanceoverthenextfewyearscontributedtoanotableriseintwo-andfive-yearTreasuryyields. Onnet,inflationcompensationhaddeclinedmoderatelysincetheNovemberFOMCmeeting,asheightenedconcernsabouttheinflationoutlookappearedtobeoutweighedbyincreasesintheperceivedprospectsfortightermonetarypolicyandbyfearsaboutthecourseofthepandemic.Renewedconcernsaboutthecourseofthepandemicalsocontributedtoadeclineinthe10-yearTreasuryyield,onnet,overtheintermeetingperioddespitestronger-than-anticipateddataoneconomicactivityandsurprisinglyhighinflation. Broadequityindexeswerelittlechanged,onnet,sincethepreviousFOMCmeeting,asstrongeconomicdataappearedtooffsetconcernsregardingmonetarypolicy,inflation,andthepandemic.Spreadsofbothinvestment-andspeculative-gradecorporatebondswidenedmoderately,andspreadsofmunicipalbondswerelittlechanged. Short-termfundingmarketswerestableovertheintermeetingperiod.Throughouttheperiod,theeffectivefederalfundsrateremainedat8basispointsapartfromabriefdecreaseontheNovembermonth-end,andtheSOFRremainedat5basispoints.ParticipationinONRRPoperationsincreasedslightlytoanaverageof$1.5trillion. Foreignassetpricesfluctuatedovertheintermeetingperiodinresponsetocentralbankcommunications,headlinesregardingCOVID-relatedrestrictionsinsomecountries,andthespreadoftheOmicronvariant.Onnet,AFEsovereignyieldsdeclined,majorforeignequityindexesgenerallyedgeddown,andthebroaddollarindexincreasedmodestly.Emergingmarketeconomy(EME)sovereignspreadswidened,andcapitalflowsintoEME-dedicatedfundsturnedslightlynegativeinthesecondhalfofNovember,partlyinresponsetoconcernsabouttheOmicronvariant.AcreditagencydeclaredtwoheavilyindebtedChinesepropertydeveloperstobein"restricteddefault,"hurtingassetpricesinChina'srealestatesector,butspilloverstobroaderfinancialmarketswerelimited. Indomesticcreditmarkets,financingconditionsfornonfinancialcorporationsremainedaccommodative.Grosscorporatebondissuancebybothinvestment-andspeculative-gradeborrowerswassolid,andgrossleveragedloanissuancewasrobust.Equityraisedthroughtraditionalinitialpublicofferingsalsowasstrong,butequityissuancethroughspecialpurposeacquisitioncompaniesremainedmuchweakerthanearlierthisyear.InNovember,commercialandindustrial(C&I)loansonbanks'booksgrewforthefirsttimesincethebeginningoftheyear.TheshareofPaycheckProtectionProgramloansinC&Iloanbalancesatbankscontinuedtofallinthethirdquarteramidongoingforgivenessofthoseloans. Thecreditqualityoflargenonfinancialcorporationsremainedsolidamidstrongearningsgrowth.S&P500firms'earningsreportsforthethirdquarteragainexceededanalystexpectations.InNovember,thevolumeofupgradesoutpacedthatofdowngradesforbothinvestment-andspeculative-gradenonfinancialcorporatebonds.TrailingdefaultratesoncorporatebondsandleveragedloansdeclinedtoclosetohistoricallowsinOctoberandNovember,andmarketindicatorsoffuturedefaultexpectationsremainedbenign. Inthemunicipalbondmarket,issuancewasrobustinOctoberandNovember,andfinancingconditionsremainedaccommodative,supportedbylowyields.Thecreditqualityofmunicipaldebtcontinuedtobestable,asthenumberofbondupgradesoutpaceddowngrades,anddefaultswererelativelylow. Survey-basedindicatorssuggestedthatcreditsupplyconditionsforsmallfirmsremainedstablebuttighterthanbeforethepandemic.SmallbusinessloanoriginationstickeddowninOctober,likelyreflectingweakloandemandassuggestedbysurvey-basedandmarketindicators.Broadmeasuresofsmallbusinesses'financialhealthimprovedslightly.Short-andlong-termdelinquencyratesonloanstosmallbusinessesremainedroughlyinlinewiththeirpre-pandemiclevels. Financingconditionsincommercialrealestate(CRE)marketsremainedaccommodative.CREloanbalancesonbanks'bookscontinuedtoexpandatasolidpaceinOctoberandNovember.Issuanceofcommercialmortgage-backedsecurities(CMBS)continuedtobestrong,supportedbyspreadsofagencyandnon-agencyCMBSthatweregenerallyatorbelowpre-pandemiclevels.DelinquencyratesonmortgagesinCMBSpoolscontinuedtofallbutremainedelevatedforloansbackedbyhotelandretailproperties. Intheresidentialmortgagemarket,financingconditionsstayedaccommodative,particularlyforborrowerswhometstandardconformingloancriteria.Conditionscontinuedtoeaseforlower-scoreborrowersbutremainedsomewhattighterthanbeforethepandemic.MortgageoriginationsforhomepurchasesandrefinanceswererobustthroughNovemberamidhistoricallylowmortgagerates.ThefractionofmortgageborrowersmissingpaymentscontinuedtodeclinethroughOctober. Financingconditionsforconsumercreditremainedaccommodativeformostborrowers,especiallythosewithhighercreditscores.Conditionsfornonprimeconsumersinthecreditcardmarketcontinuedtoeasefromthetightlevelsseenearlierinthepandemic.GrowthofcreditcardbalancespickedupinSeptemberandOctober,andbankcreditdataindicatedafurtherincreaseinNovember.GrowthofautoloansoutstandingslowedthroughOctoberbecauseoftepidautosales.UseofforbearanceprogramsforcreditcardandautoloansremainedatlowlevelsinSeptemberandOctober. StaffEconomicOutlook TheprojectionforU.S.consumerpriceinflationpreparedbythestafffortheDecemberFOMCmeetingwashigherthanintheNovemberprojection.Thenear-termoutlookwasrevisedup,reflectingfaster-than-expectedincreasesbothforabroadarrayofconsumerpricesandforwages.Supplychainbottleneckswereseenascontinuingtoputupwardpressureonprices.Asaresult,the12-monthchangeinPCEpriceswasprojectedtomoveupfurtherrelativetoOctober'spaceandtoendtheyeararound5percent.Overthefollowingtwoyears,theboosttoconsumerpricescausedbysupplyissueswasexpectedtopartlyreverse,andenergypriceswereprojectedtodecline.PCEpriceinflationwasthereforeexpectedtostepdownto2.1percentin2022andtoremaintherein2023and2024.Projectedinflationoverthisperiodwasalittlehigherthaninthepreviousprojection,assupplybottleneckswereassumedtoresolvemoregraduallyandasthesalienceofthisyear'shigherinflationreadingswasassumedtoraisetheunderlyingtrendininflationrelativetothepreviousforecast.Longer-runinflationwasstillassumedtoremainanchoredat2percent. Thestaff'sforecastforeconomicactivityremainedstrongbutwasweaker,onnet,thanintheNovemberprojection.Althoughaggregatedemandappearedtoberisingsharplyinthefourthquarter,theemergingsurgeinCOVID-19caseloadsandhospitalizationswasexpectedtoweighoneconomicactivityinthewintermonths.Inaddition,supplybottleneckswereexpectedtoresolvemoregraduallythanpreviouslyassumed.Alltold,realGDPwasexpectedtopostasizablegainover2021asawholeandtoriseabitlessrapidlyin2022,withthepaceofgrowthsupportedbythecontinuedreopeningoftheeconomyandtheresolutionofsupplyconstraintsinmostsectors.Withtheboostfromthesefactorsfading,realGDPgrowthwasprojectedtostepdownnoticeablyin2023.Giventhehigherforecastforinflation,thestaffassumedmonetarypolicywouldbelessaccommodativeincomingyearsandthereforereviseddownthemedium-termforecastforGDPsomewhat.Evenso,thelevelofrealGDPwasexpectedtoremainwellabovepotentialthroughouttheprojectionperiod,andlabormarketconditionswereprojectedtoremainverytight. Thestaffcontinuedtojudgethattheriskstothebaselineprojectionforeconomicactivitywereskewedtothedownsideandthattherisksaroundtheinflationprojectionwereskewedtotheupside.Inparticular,thepossibilitythatCOVID-19casescouldcontinuetorisesteeply,especiallyiftheOmicronvariantprovestobevaccineresistant,wasseenasanimportantsourceofdownsiderisktoactivity,whilethepossibilityofmoresevereandpersistentsupplyissueswasviewedasanadditionaldownsiderisktoactivityandasanupsiderisktoinflation. Participants'ViewsonCurrentEconomicConditionsandtheEconomicOutlook InconjunctionwiththisFOMCmeeting,participantssubmittedtheirprojectionsofthemostlikelyoutcomesforrealGDPgrowth,theunemploymentrate,andinflationforeachyearfrom2021through2024andoverthelongerrunbasedontheirindividualassessmentsofappropriatemonetarypolicy,includingthepathofthefederalfundsrate.Thelonger-runprojectionsrepresentedeachparticipant'sassessmentoftheratetowhicheachvariablewouldbeexpectedtoconverge,overtime,underappropriatemonetarypolicyandintheabsenceoffurthershockstotheeconomy.ASummaryofEconomicProjectionswasreleasedtothepublicfollowingtheconclusionofthemeeting. Intheirdiscussionofcurrenteconomicconditions,participantsnotedthat,withprogressonvaccinationsandstrongpolicysupport,indicatorsofeconomicactivityandemploymenthadcontinuedtostrengthen.ThesectorsmostadverselyaffectedbythepandemichadimprovedinrecentmonthsbutcontinuedtobeaffectedbyCOVID-19.Jobgainshadbeensolidinrecentmonths,andtheunemploymentratehaddeclinedsubstantially.Supplyanddemandimbalancesrelatedtothepandemicandthereopeningoftheeconomyhadcontinuedtocontributetoelevatedlevelsofinflation.Overallfinancialconditionsremainedaccommodative,inpartreflectingpolicymeasurestosupporttheeconomyandtheflowofcredittoU.S.householdsandbusinesses.Participantscommentedthatthepathoftheeconomycontinuedtodependonthecourseofthevirus.Aneasingofsupplyconstraintswasexpectedtosupportcontinuedgainsineconomicactivityandemploymentaswellasareductionininflation.Riskstotheeconomicoutlookremained,includingfromnewvariantsofthevirus. Participantsobservedthatgrowthofeconomicactivityappearedtohavebeenstronginthefourthquarterafterhavingslowedinthethirdquarter,andtheygenerallyexpectedrobustgrowthtocontinuein2022.Afewparticipantscitedhealthyhouseholdbalancesheets,theneedforbusinessestorebuildinventory,andaccommodativefinancialconditionsasfactorssupportingcontinuedrobustgrowth.Acoupleofparticipantscommentedthatbusinessconditionsappearedtobeimprovingbroadly,includinginsectorsprovidingin-personservices,suchastheretail,restaurant,andhotelsectors.ManyparticipantsnotedthattheemergenceoftheOmicronvariantmadetheeconomicoutlookmoreuncertain;severalremarkedthattheydidnotyetseethenewvariantasfundamentallyalteringthepathofeconomicrecoveryintheUnitedStates. Intheirdiscussionofthehouseholdsector,participantsgenerallynotedthatdemandforconsumergoodshadremainedstrong,likelysupportedbyaccommodativefiscalandmonetarypolicies,increasedhouseholdincomeasmorepeoplefoundjobs,increasingnetworthofthehouseholdsector,andthehighlevelofsavingsaccumulatedthroughthecourseofthepandemic. Participantsnotedthatsupplychainbottlenecksandlaborshortagescontinuedtolimitbusinesses'abilitytomeetstrongdemand.Theyjudgedthatthesechallengeswouldlikelylastlongerandbemorewidespreadthanpreviouslythought.Participantsgenerallyexpectedglobalsupplychainbottleneckstopersistwellintonextyearatleast.Whileseveralparticipantspointedtosignsofincrementalimprovementinsupplychains,afewothersremarkedthatbusinesscontactswereexperiencingdeterioratingsupplyconditionsthatcouldbeexacerbatedbytheemergenceofnewvariantsofthevirus.Acoupleofparticipantsreportedthatsomecontactswereimplementingpermanentchangesintheirbusinessmodelstohelpweathercurrentandfuturedisruptions,includingholdinglargerinventoriesorbuildingdomesticmanufacturingcapacity.Manybusinesscontactscontinuedtoexperiencedifficultyhiringworkersacrossallskilllevels,notingthelackofqualifiedcandidatesaswell.Someparticipantsnotedthatbusinesseswereofferinghigherwages,largerbonuses,ormoreflexibleworkarrangementstocompeteforworkers. Participantsjudgedthatlabormarketscontinuedtostrengthen,withtheunemploymentratefallingrapidlyandpayrollsgrowingatasolidpace.AfewparticipantsnotedtherecentdeclineintheunemploymentratesofAfricanAmericansandHispanicsandthenarrowingoftheracialandethnicgapintheprime-ageemployment-to-populationratioassuggestingamoreinclusivelabormarketrecovery.SomeparticipantsdiscussedthemodestincreaseinthelaborforceparticipationrateinNovember.Anumberofparticipantsjudgedthatasubstantialimprovementinlaborforceparticipationwouldtakelongerthanpreviouslyexpected.Afewothersassessedthatanyfurtherimprovementinlaborforceparticipationwouldbequitemodest.Participantscitedanumberofpandemicandeconomicfactorslikelydepressinglaborforceparticipation,suchasincreasedcaregivingneedsamidashortageofworkersinthecaregivingindustry,remainingconcernsaboutthevirus,andhealthybalancesheetsforhouseholds,includingforthosewhoretiredearly.Acoupleofparticipantscitedfactorsthatcouldsupporthigherlaborforceparticipationoverthenextfewyears,includingwaningfiscalstimulus;depletedsavings,particularlyforlower-incomehouseholds;andthehistoricaltendencyforlaborforceparticipationtolagimprovementinthelabormarket. ParticipantspointedtoanumberofsignsthattheU.S.labormarketwasverytight,includingnear-recordratesofquitsandjobvacancies,aswellasanotablepickupinwagegrowth.Inlinewiththerecentdatashowingariseintheemploymentcostindex,manyparticipantsreportedDistrictbusinesscontactseitherplanningorhavingimplementedlargerwageincreasestoretaincurrentemployeesorattractnewworkers.Participantsgenerallynotedthattheyweremonitoringtheincomingdataforsignsofinflationarypressuresassociatedwiththeincreasinglytightlabormarket.Acknowledgingthatthemaximumlevelofemploymentconsistentwithpricestabilitymayevolveovertime,manyparticipantssawtheU.S.economymakingrapidprogresstowardtheCommittee'smaximum-employmentgoal.Severalparticipantsviewedlabormarketconditionsasalreadylargelyconsistentwithmaximumemployment. Participantsremarkedthatinflationreadingshadbeenhigherandweremorepersistentandwidespreadthanpreviouslyanticipated.Someparticipantsnotedthattrimmedmeanmeasuresofinflationhadreacheddecade-highlevelsandthatthepercentageofproductcategorieswithsubstantialpriceincreasescontinuedtoclimb.Whileparticipantsgenerallycontinuedtoanticipatethatinflationwoulddeclinesignificantlyoverthecourseof2022assupplyconstraintseased,almostallstatedthattheyhadreviseduptheirforecastsofinflationfor2022notably,andmanydidsofor2023aswell.Indiscussingtheirrevisionstotheinflationoutlook,participantspointedtorisinghousingcostsandrents,morewidespreadwagegrowthdrivenbylaborshortages,andmoreprolongedglobalsupply-sidefrictions,whichcouldbeexacerbatedbytheemergenceoftheOmicronvariant.Moreover,participantswidelycitedbusinesscontactsfeelingconfidentthattheywouldbeabletopassonhighercostsoflaborandmaterialtocustomers.Participantsnotedtheircontinuingattentiontothepublic'sconcernaboutthesizableincreaseinthecostoflivingthathadtakenplacethisyearandtheassociatedburdenonU.S.households,particularlythosewhohadlimitedscopetopayhigherpricesforessentialgoodsandservices. Intheircommentsoninflationexpectations,someparticipantsdiscussedtheriskthatrecentelevatedlevelsofinflationcouldincreasethepublic'slonger-termexpectationsforinflationtoalevelabovethatconsistentwiththeCommittee'slonger-runinflationobjective.TheynotedthattherealizationofsuchadevelopmentcouldmakeitharderfortheCommitteetoachieve2percentinflationoverthelongerrun.Acoupleofparticipantspointedtoreportsofhigherinflationexpectationsofbusinessesandofincreaseduseofcost-of-livingadjustmentsinwagenegotiationsasearlydevelopmentsthatcouldpotentiallyaffecttheanchoringofinflationexpectations.Afewparticipants,however,notedthatlong-terminflationexpectationsremainedwellanchored,citingstablereadingsofmarket-basedinflationcompensationmeasuresorthegenerallylowleveloflonger-termbondyields. Participantsobservedthatuncertaintyabouttheeconomicoutlookremainedhigh.Mostagreedthatriskstoinflationwereweightedtotheupside.Severalparticipantspointedtothepossibilitythatstructuralfactorsthatkeptinflationlowinthepreviousdecade,suchastechnologicalchanges,demographics,andtheproximityoftheELBinanenvironmentoflowequilibriuminterestrates,mayreemergewhentheeffectsofthepandemicabate.Acoupleofothersnotedtheriskthatpersistentrealwagegrowthinexcessofproductivitygrowthcouldtriggerinflationarywage–pricedynamics.Participantsgenerallycontinuedtostressuncertaintiesassociatedwiththelabormarket—inparticular,theevolutionoflaborforceparticipation—andwiththelengthoftimerequiredtoresolvethesupplychainsituation.Manyparticipantsnotedthatthepandemic,particularlynewvariantsofthevirus,continuedtoposedownsideriskstoeconomicactivityandupsideriskstoinflation. Intheirconsiderationofthestanceofmonetarypolicy,participantsreaffirmedtheFederalReserve'scommitmenttousingitsfullrangeoftoolstosupporttheU.S.economyduringthischallengingtime,therebypromotingtheCommittee'sstatutorygoalsofmaximumemploymentandpricestability.ParticipantsdiscussedtheprogresstheeconomyhadmadetowardthecriteriatheCommitteehadspecifiedinitsforwardguidanceforthefederalfundsrate.ParticipantsagreedthattheCommittee'scriteriaofinflationrisingto2percentandmoderatelyexceeding2percentforsometimehadbeenmorethanmet.Allparticipantsremarkedthatinflationhadcontinuedtorunnotablyabove2percent,reflectingsupplyanddemandimbalancesrelatedtothepandemicandthereopeningoftheeconomy.Withrespecttothemaximum-employmentcriterion,participantsnotedthatthelabormarkethadbeenmakingrapidprogressasmeasuredbyavarietyofindicators,includingsolidjobgainsreportedinrecentmonths,asubstantialfurtherdeclineinarangeofunemploymentratestolevelswellbelowthoseprevailingayearago,andalaborforceparticipationratethathadrecentlyedgedup.Manyparticipantsjudgedthat,ifthecurrentpaceofimprovementcontinued,labormarketswouldfastapproachmaximumemployment.Severalparticipantsremarkedthattheyviewedlabormarketconditionsasalreadylargelyconsistentwithmaximumemployment. InsupportoftheCommittee'sgoalsofmaximumemploymentandinflationattherateof2percentoverthelongerrun,participantsjudgedthatitwouldbeappropriatefortheCommitteetokeepthetargetrangeforthefederalfundsrateat0to1/4percentuntillabormarketconditionshadreachedlevelsconsistentwiththeCommittee'sassessmentsofmaximumemployment,aconditionmostparticipantsjudgedcouldbemetrelativelysooniftherecentpaceoflabormarketimprovementscontinued.Afewparticipantsremarkedthatmaximumemploymentconsistentwithpricestabilityevolvesovertimeandthatfurtherimprovementsinlabormarketswerelikelyoversubsequentyearsastheeconomycontinuedtoexpand.SomeparticipantsalsoremarkedthattherecouldbecircumstancesinwhichitwouldbeappropriatefortheCommitteetoraisethetargetrangeforthefederalfundsratebeforemaximumemploymenthadbeenfullyachieved—forexample,iftheCommitteejudgedthatitsemploymentandprice-stabilitygoalswerenotcomplementaryinlightofeconomicdevelopmentsandthatinflationpressuresandinflationexpectationsweremovingmateriallyandpersistentlyhigherinawaythatcouldimpedetheattainmentoftheCommittee'slonger-rungoals. Inlightofelevatedinflationpressuresandthestrengtheninglabormarket,participantsjudgedthattheincreaseinpolicyaccommodationprovidedbytheongoingpaceofnetassetpurchaseswasnolongernecessary.TheyremarkedthataquickerconclusionofnetassetpurchaseswouldbetterpositiontheCommitteetosetpolicytoaddressthefullrangeofplausibleeconomicoutcomes.Participantsjudgedthatitwouldbeappropriatetodoublethepaceoftheongoingreductioninnetassetpurchases.SuchachangewouldresultinreducingthemonthlypaceofnetpurchasesofTreasurysecuritiesby$20billionandofagencyMBSby$10billionstartinginJanuary.Participantsalsoexpectedthateconomicconditionswouldevolveinamannersuchthatsimilarreductionsinthepaceofnetassetpurchaseswouldbeappropriateeachsubsequentmonth,resultinginanendtonetassetpurchasesinmid-March,afewmonthssoonerthanparticipantshadanticipatedattheNovemberFOMCmeeting.Inaddition,participantsremarkedthattheCommitteeshouldcontinuetobepreparedtoadjustthepaceofpurchasesifwarrantedbychangesintheeconomicoutlook. Participantscontinuedtostressthatmaintainingflexibilitytoimplementappropriatepolicyadjustmentsonthebasisofrisk-managementconsiderationsshouldbeaguidingprincipleinconductingpolicyinthecurrenthighlyuncertainenvironment.Participantsgenerallynotedthat,giventheirindividualoutlooksfortheeconomy,thelabormarket,andinflation,itmaybecomewarrantedtoincreasethefederalfundsratesooneroratafasterpacethanparticipantshadearlieranticipated.SomeparticipantsalsonotedthatitcouldbeappropriatetobegintoreducethesizeoftheFederalReserve'sbalancesheetrelativelysoonafterbeginningtoraisethefederalfundsrate.SomeparticipantsjudgedthatalessaccommodativefuturestanceofpolicywouldlikelybewarrantedandthattheCommitteeshouldconveyastrongcommitmenttoaddresselevatedinflationpressures.Theseparticipantsnoted,however,thatameasuredapproachtotighteningpolicywouldhelpenabletheCommitteetoassessincomingdataandbeinpositiontoreacttothefullrangeofplausibleeconomicoutcomes. CommitteePolicyAction Intheirdiscussionofmonetarypolicyforthismeeting,membersagreedthatwithprogressonvaccinationsandstrongpolicysupport,indicatorsofeconomicactivityandemploymenthadcontinuedtostrengthen.TheynotedthatthesectorsmostadverselyaffectedbythepandemichadimprovedinrecentmonthsbutcontinuedtobeaffectedbyCOVID-19.Jobgainshadbeensolidinrecentmonths,andtheunemploymentratehaddeclinedsubstantially.Theyremarkedthatsupplyanddemandimbalancesrelatedtothepandemicandthereopeningoftheeconomyhadcontinuedtocontributetoelevatedlevelsofinflation.Overallfinancialconditionsremainedaccommodative,inpartreflectingpolicymeasurestosupporttheeconomyandtheflowofcredittoU.S.householdsandbusinesses.Membersalsoacknowledgedthatthepathoftheeconomycontinuedtodependonthecourseofthevirus.Progressonvaccinationsandaneasingofsupplyconstraintswereexpectedtosupportcontinuedgainsineconomicactivityandemploymentaswellasareductionininflation,butriskstotheeconomicoutlookremained,includingfromnewvariantsofthevirus. Aselevatedinflationhadpersistedforlongerthantheyhadpreviouslyanticipated,membersagreedthatitwasappropriatetoremovethereferenceto"transitory"factorsaffectinginflationinthepostmeetingstatementandinsteadnotethatsupplyanddemandimbalanceshavecontinuedtocontributetoelevatedinflation.Membersalsoagreedthat,withtheemergenceoftheOmicronvariant,itwasappropriatetonotetheriskofnewvariantsofthevirusintheirassessmentofriskstotheeconomicoutlook. MembersagreedthattheFederalReservewascommittedtousingitsfullrangeoftoolstosupporttheU.S.economyinthischallengingtime,therebypromotingitsmaximumemploymentandpricestabilitygoals.Allmembersreaffirmedtheircommitmenttoseektoachievemaximumemploymentandinflationattherateof2percentoverthelongerrun. MembersagreedthatthepostmeetingstatementshouldbeupdatedtoreflecttheCommittee'sassessmentoftheprogresstheeconomyhadmadetowardthecriteriaspecifiedinitsforwardguidanceforthetargetrangeforthefederalfundsrate.Theyagreedthattheinflationcriteriaintheguidancehadbeenmetandthatthepostmeetingstatementshouldnotethatwithinflationhavingexceeded2percentforsometime,theCommitteeexpectedthatitwouldbeappropriatetomaintainthecurrenttargetrangeof0to1/4percentuntillabormarketconditionshadreachedlevelsconsistentwiththeCommittee'sassessmentsofmaximumemployment. Inlightofinflationdevelopmentsandthefurtherimprovementinthelabormarket,membersdecidedtoreducethemonthlypaceoftheFederalReserve'snetassetpurchasesby$20billionforTreasurysecuritiesand$10billionforagencyMBS.Specifically,beginninginJanuary,theCommitteewouldincreaseitsholdingsofTreasurysecuritiesbyatleast$40billionpermonthandofagencyMBSbyatleast$20billionpermonth.Membersalsoagreedthatsimilarreductionsinthepaceofnetassetpurchaseswouldlikelybeappropriateinsubsequentmonths,implyingthatincreasesintheFederalReserve'ssecuritiesholdingswouldceasebymid-MarchundertheCommittee'soutlook,afewmonthssoonerthanhadbeenanticipatedatthepreviousmeeting.MembersnotedthattheCommitteewaspreparedtoadjustthepaceofpurchasesifwarrantedbychangesintheeconomicoutlookandthatitwasimportanttomaintaintheflexibilitytoadjustthestanceofpolicyasappropriateinresponsetochangesintheCommittee'soutlookforthelabormarketandinflation.MembersalsonotedthattheFederalReserve'songoingassetpurchasesandholdingsofsecuritieswouldcontinuetofostersmoothmarketfunctioningandaccommodativefinancialconditions,therebysupportingtheflowofcredit. Membersagreedthat,inassessingtheappropriatestanceofmonetarypolicy,theywouldcontinuetomonitortheimplicationsofincominginformationfortheeconomicoutlookandthattheywouldbepreparedtoadjustthestanceofmonetarypolicyasappropriateintheeventthatrisksemergedthatcouldimpedetheattainmentoftheCommittee'sgoals.Theyalsoconcurredthat,inassessingtheappropriatestanceofmonetarypolicy,theywouldtakeintoaccountawiderangeofinformation,includingreadingsonpublichealth,labormarketconditions,inflationpressuresandinflationexpectations,andfinancialandinternationaldevelopments. Attheconclusionofthediscussion,theCommitteevotedtoauthorizeanddirecttheFederalReserveBankofNewYork,untilinstructedotherwise,toexecutetransactionsintheSystemOpenMarketAccountinaccordancewiththefollowingdomesticpolicydirective,forreleaseat2:00p.m.: "EffectiveDecember16,2021,theFederalOpenMarketCommitteedirectstheDeskto: Undertakeopenmarketoperationsasnecessarytomaintainthefederalfundsrateinatargetrangeof0to1/4percent. CompletetheincreaseinSystemOpenMarketAccount(SOMA)holdingsofTreasurysecuritiesby$60billionandofagencymortgage-backedsecurities(MBS)by$30billion,asindicatedinthemonthlypurchaseplansreleasedinmid-December. IncreasetheSOMAholdingsofTreasurysecuritiesby$40billionandofagencyMBSby$20billion,duringthemonthlypurchaseperiodbeginninginmid-January. IncreaseholdingsofTreasurysecuritiesandagencyMBSbyadditionalamountsasneededtosustainsmoothfunctioningofmarketsforthesesecurities. Conductovernightrepurchaseagreementoperationswithaminimumbidrateof0.25percentandwithanaggregateoperationlimitof$500billion;theaggregateoperationlimitcanbetemporarilyincreasedatthediscretionoftheChair. Conductovernightreverserepurchaseagreementoperationsatanofferingrateof0.05percentandwithaper-counterpartylimitof$160billionperday;theper-counterpartylimitcanbetemporarilyincreasedatthediscretionoftheChair. RolloveratauctionallprincipalpaymentsfromtheFederalReserve'sholdingsofTreasurysecuritiesandreinvestallprincipalpaymentsfromtheFederalReserve'sholdingsofagencydebtandagencyMBSinagencyMBS. Allowmodestdeviationsfromstatedamountsforpurchasesandreinvestments,ifneededforoperationalreasons. EngageindollarrollandcouponswaptransactionsasnecessarytofacilitatesettlementoftheFederalReserve'sagencyMBStransactions." Thevotealsoencompassedapprovalofthestatementbelowforreleaseat2:00p.m.: "TheFederalReserveiscommittedtousingitsfullrangeoftoolstosupporttheU.S.economyinthischallengingtime,therebypromotingitsmaximumemploymentandpricestabilitygoals. Withprogressonvaccinationsandstrongpolicysupport,indicatorsofeconomicactivityandemploymenthavecontinuedtostrengthen.ThesectorsmostadverselyaffectedbythepandemichaveimprovedinrecentmonthsbutcontinuetobeaffectedbyCOVID-19.Jobgainshavebeensolidinrecentmonths,andtheunemploymentratehasdeclinedsubstantially.Supplyanddemandimbalancesrelatedtothepandemicandthereopeningoftheeconomyhavecontinuedtocontributetoelevatedlevelsofinflation.Overallfinancialconditionsremainaccommodative,inpartreflectingpolicymeasurestosupporttheeconomyandtheflowofcredittoU.S.householdsandbusinesses. Thepathoftheeconomycontinuestodependonthecourseofthevirus.Progressonvaccinationsandaneasingofsupplyconstraintsareexpectedtosupportcontinuedgainsineconomicactivityandemploymentaswellasareductionininflation.Riskstotheeconomicoutlookremain,includingfromnewvariantsofthevirus. TheCommitteeseekstoachievemaximumemploymentandinflationattherateof2percentoverthelongerrun.Insupportofthesegoals,theCommitteedecidedtokeepthetargetrangeforthefederalfundsrateat0to1/4percent.Withinflationhavingexceeded2percentforsometime,theCommitteeexpectsitwillbeappropriatetomaintainthistargetrangeuntillabormarketconditionshavereachedlevelsconsistentwiththeCommittee'sassessmentsofmaximumemployment.Inlightofinflationdevelopmentsandthefurtherimprovementinthelabormarket,theCommitteedecidedtoreducethemonthlypaceofitsnetassetpurchasesby$20billionforTreasurysecuritiesand$10billionforagencymortgage-backedsecurities.BeginninginJanuary,theCommitteewillincreaseitsholdingsofTreasurysecuritiesbyatleast$40billionpermonthandofagencymortgage‑backedsecuritiesbyatleast$20billionpermonth.TheCommitteejudgesthatsimilarreductionsinthepaceofnetassetpurchaseswilllikelybeappropriateeachmonth,butitispreparedtoadjustthepaceofpurchasesifwarrantedbychangesintheeconomicoutlook.TheFederalReserve'songoingpurchasesandholdingsofsecuritieswillcontinuetofostersmoothmarketfunctioningandaccommodativefinancialconditions,therebysupportingtheflowofcredittohouseholdsandbusinesses. Inassessingtheappropriatestanceofmonetarypolicy,theCommitteewillcontinuetomonitortheimplicationsofincominginformationfortheeconomicoutlook.TheCommitteewouldbepreparedtoadjustthestanceofmonetarypolicyasappropriateifrisksemergethatcouldimpedetheattainmentoftheCommittee'sgoals.TheCommittee'sassessmentswilltakeintoaccountawiderangeofinformation,includingreadingsonpublichealth,labormarketconditions,inflationpressuresandinflationexpectations,andfinancialandinternationaldevelopments." Votingforthisaction:JeromeH.Powell,JohnC.Williams,ThomasI.Barkin,RaphaelW.Bostic,MichelleW.Bowman,LaelBrainard,RichardH.Clarida,MaryC.Daly,CharlesL.Evans,RandalK.Quarles,andChristopherJ.Waller. Votingagainstthisaction:None. ConsistentwiththeCommittee'sdecisiontoleavethetargetrangeforthefederalfundsrateunchanged,theBoardvotedunanimouslytomaintaintheinterestratepaidonreservebalancesat0.15percent,effectiveDecember16,2021.TheBoardalsovotedunanimouslytoapproveestablishmentoftheprimarycreditrateattheexistinglevelof0.25percent,effectiveDecember16,2021. Attheendofthemeeting,theChairnotedthattheBoard'sstaffhadmadesubstantialprogressindevelopingformalpolicestoimplementthetoughandcomprehensiveethicsrulesforseniorofficialsthatwereannouncedinOctober. ItwasagreedthatthenextmeetingoftheCommitteewouldbeheldonTuesday–Wednesday,January25–26,2022.Themeetingadjournedat11:00a.m.onDecember15,2021. NotationVote BynotationvotecompletedonNovember23,2021,theCommitteeunanimouslyapprovedtheminutesoftheCommitteemeetingheldonNovember2–3,2021. _______________________ JamesA.Clouse Secretary 1.TheFederalOpenMarketCommitteeisreferencedasthe"FOMC"andthe"Committee"intheseminutes;theBoardofGovernorsoftheFederalReserveSystemisreferencedasthe"Board"intheseminutes.Returntotext 2.AttendedTuesday'ssessiononly.Returntotext 3.Attendedthroughthediscussionofpolicynormalizationconsiderations.Returntotext 4.AttendedthroughthediscussionofpolicynormalizationconsiderationsandallofWednesday'ssession.Returntotext BacktoTop LastUpdate: January05,2022