FOMC meeting minutes: 2022-01-26

Historical release narrative reproduced from the official public-domain source. Statistical tables, standard technical appendices, administrative material and attendance rosters are omitted; formatting is adapted for reading. Figures retain the release's historical context and may have been revised. Consult the linked source for the complete document.

Staff Review of the Economic Situation The information available at the time of the January 25–26 meeting suggested that U.S. real gross domestic product (GDP) growth had picked up in the fourth quarter after slowing in the third quarter. Labor market conditions improved further in December, and indicators of labor compensation continued to show robust increases. Consumer price inflation through November—as measured by the 12-month percentage change in the price index for personal consumption expenditures (PCE)—remained elevated.

Total nonfarm payroll employment posted a moderate gain in December. The unemployment rate declined from 4.2 percent in November to 3.9 percent in December. The unemployment rate for African Americans moved higher, and the Hispanic unemployment rate declined; both rates remained well above the national average. The labor force participation rate was unchanged in December, and the employment-to-population ratio moved up. The private-sector job openings rate, as measured by the Job Openings and Labor Turnover Survey, moved down in November but remained well above pre-pandemic levels; the quits rate was also elevated. Weekly estimates of private-sector payrolls, constructed by the Board's staff using data provided by the payroll processor ADP that were available through the first half of January, pointed to a slower pace of private employment gains relative to December. Average hourly earnings rose at an annual rate of 6.2 percent over the last three months of the year; although wage increases were widespread across industries, they were particularly notable in the leisure and hospitality sector as well as the transportation and warehousing sector.

Inflation readings remained high, and various indicators suggested that inflationary pressures had broadened over the second half of 2021. Total PCE price inflation was 5.7 percent over the 12 months ending in November, and core PCE price inflation, which excludes changes in consumer energy prices and many consumer food prices, was 4.7 percent over the same period. The trimmed mean measure of 12-month PCE inflation constructed by the Federal Reserve Bank of Dallas was 2.8 percent in November, 1 percentage point higher than its year-earlier rate of increase. In December, the 12-month change in the consumer price index (CPI) was 7.0 percent, while core CPI inflation was 5.5 percent over the same period. The staff's common inflation expectations index, which combines information from many indicators of inflation expectations and inflation compensation, had largely leveled off over the fall and was close to its 2014 average.

Real PCE was unchanged in November, and available indicators—including the components of the nominal retail sales data used to estimate PCE—pointed to a decline in December, possibly reflecting the sharp rise in COVID-19 cases in the second half of that month as well as some holiday sales having been pulled forward to earlier months. Housing demand remained strong, and available indicators suggested that residential investment increased in the fourth quarter. However, shortages of construction materials, buildable lots, and other inputs continued to weigh on activity in this sector.

Business fixed investment appeared to post only a small gain in the fourth quarter, as investment in transportation equipment was held back by supply bottlenecks and limited supplies of construction materials restrained nonresidential structures investment.

Manufacturing output moved down in December after advancing strongly in October and November. Motor vehicle assemblies reversed some of their November increase; in addition, manufacturing production outside of motor vehicles ticked lower.

Total real government purchases appeared to have fallen in the fourth quarter. Al­though available data suggested that real federal purchases rose, indicators of real state and local government purchases pointed to a decline in the fourth quarter despite state and local governments' extremely strong budget positions and the widespread return to in-person schooling last fall.

The U.S. international trade deficit widened at the end of last year. Imports of goods rose sharply in November and December, led by increases in consumer goods, while exports of goods were little changed over the two months, on net, after surging in October. Shipping congestion and other bottlenecks continued to restrain the level of trade in goods. Meanwhile, services exports jumped in November, reflecting a sizable increase in exports of travel services after the reopening of U.S. borders to vaccinated foreign travelers early in the month. Even so, services trade was very low relative to pre-pandemic norms, largely because the level of international travel remained depressed.

Incoming data suggested that foreign economic growth picked up in the fourth quarter of 2021 as economies in emerging Asia bounced back from lockdowns in the third quarter induced by the Delta variant of the COVID-19 virus. Purchasing managers indexes (PMIs) pointed to improved supplier delivery times, and foreign vehicle production rose notably, suggesting that supply bottlenecks continued to ease somewhat. However, the rapid spread of the Omicron variant led to renewed public health restrictions in several countries, particularly in China, and appeared to be weighing on activity at the start of the year. Inflation abroad continued to rise, mostly driven by further increases in retail energy prices, effects from supply bottlenecks, and, in some emerging market economies (EMEs), by rising food prices. That said, input and output price components of PMIs provided some tentative signs that easing supply constraints have started to contribute to some letup in inflationary pressures in several foreign economies.

Staff Review of the Financial Situation Over the intermeeting period, easing concerns around the economic effects of the Omicron variant and FOMC communications that were viewed as less accommodative than expected contributed to increases in Treasury yields. Long-term sovereign yields in AFEs also rose notably. Broad domestic equity indexes decreased markedly, and spreads of corporate bonds widened modestly. Short-term funding markets were stable, while participation in the overnight reverse repurchase agreement (ON RRP) facility increased further. Market-based financing conditions remained accommodative, and bank lending standards eased for most loan categories.

The expected path for the federal funds rate over the next few years—implied by a straight read of overnight index swap quotes—rose notably since the December FOMC meeting, apparently reflecting less-accommodative-than-expected FOMC communications and an easing of concerns around the economic effects of the Omicron variant. Those factors also contributed to notable rises in 2-, 5-, and 10-year nominal Treasury yields. Inflation compensation implied by Treasury Inflation-Protected Securities rose slightly, on net.

Broad equity indexes decreased markedly, on net, particularly in the latter part of the intermeeting period, as shifts in expectations about the pace of monetary policy tightening, global inflationary pressures, and escalating tensions between Russia and Ukraine weighed on equity prices. The one-month option-implied volatility on the S&P 500—the VIX—increased considerably, on net, to above the 90th percentile of its historical distribution. Spreads of investment- and speculative-grade corporate bonds widened modestly. Spreads of municipal bonds were roughly unchanged.

Short-term funding markets were stable over the intermeeting period. The effective federal funds rate and the Secured Overnight Financing Rate generally held steady at 8 basis points and 5 basis points, respectively. Participation in ON RRP operations averaged $1.6 trillion, about $150 billion higher than during the previous intermeeting period, and reached an all-time high of $1.9 trillion at year-end. Government money market funds continued to receive investment inflows and accounted for the majority of ON RRP take-up.

Over the intermeeting period, movements in foreign asset prices responded to waning concerns about the Omicron variant's potential economic effects and firming views that monetary accommodation in several advanced economies will be removed at a faster pace than previously expected. Some market participants also pointed to rising geopolitical tensions related to Russia as contributing to the moves. On net, AFE sovereign yields increased notably, most major foreign equity indexes declined moderately, and the broad dollar index decreased modestly. EME sovereign spreads widened, and capital flows into EME-dedicated bond funds remained slightly negative, while flows into EME equity funds turned positive.

In domestic credit markets, financing conditions for nonfinancial firms remained broadly accommodative. Gross issuance of corporate bonds and leveraged loans remained solid but slowed somewhat in December, reflecting seasonal factors. Equity funding raised through initial public offerings continued at a strong pace in November and December, while equity issuance through special purpose acquisition companies remained muted relative to earlier in 2021.

Commercial and industrial (C&I) loans expanded over the fourth quarter following more than a year of declines. In the January Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS), banks reported easier standards and stronger demand for C&I loans over the fourth quarter.

The credit quality of large nonfinancial corporations remained strong over the intermeeting period. The volumes of nonfinancial corporate bond and leveraged loan upgrades exceeded those of downgrades in November and December. Trailing default rates on nonfinancial bonds edged down further to historical lows, while market indicators of future expected default rates remained benign and historically low.

In the municipal bond market, financing conditions remained accommodative, as municipal bond yields stayed near historical lows. Issuance of municipal debt was strong in November and December. The credit quality of municipal debt remained stable, and the volume of defaults stayed low.

Financing conditions for small businesses eased a bit over the intermeeting period. In the January SLOOS, small banks reported easing C&I loan standards to small firms over the fourth quarter. Loan originations to small businesses rose in November to near pre-pandemic levels. Banks in the January SLOOS reported stronger loan demand by small firms over the fourth quarter, though loan demand remained weak overall.

Commercial real estate (CRE) loan balances on banks' books expanded at a solid pace in the fourth quarter, and, in the January SLOOS, banks reported an easing of standards on such loans amid stronger demand for most CRE loan categories. Issuance of non-agency commercial mortgage-backed securities (CMBS) surged in the fourth quarter, while issuance of agency CMBS slowed. Delinquency rates on mortgages in CMBS pools continued to fall but remained elevated for hotel and retail mortgages.

In the residential mortgage market, financing conditions remained accommodative, particularly for borrowers who met standard conforming loan criteria. In the January SLOOS, banks reported easing lending standards for most mortgage categories in the fourth quarter. Mortgage rates increased over the intermeeting period in line with rates on agency MBS and 10-year Treasury securities but remained low by historical standards. The fraction of mortgage borrowers missing payments continued to decline through November.

Financing conditions for consumer credit remained accommodative for most borrowers, especially those with higher credit scores. Lending standards for nonprime consumers in the credit card market continued to ease from the tight levels seen earlier in the pandemic. Banks reported in the January SLOOS that demand for credit card loans strengthened over the fourth quarter, while lending standards eased for auto loans amid a weakening in demand. With sales running low because of constrained supply, auto loan growth continued to slow in October and November from the more rapid pace recorded in the first half of the year.

The staff provided an update on its assessments of the stability of the financial system and, on balance, characterized the financial vulnerabilities of the U.S. financial system as notable. The staff judged that asset valuation pressures remained elevated. In particular, the forward price-to-earnings ratio for the S&P 500 index stood at the upper end of its historical distribution; high-yield corporate bond spreads and the excess loan premium for leveraged loans remained at low levels; and house prices grew strongly, with price-to-rent ratios that were at elevated levels. The staff noted that the market capitalization of crypto-assets had grown significantly over the past decade and had experienced considerable volatility, including sizable declines since late last year. The staff changed its assessment of vulnerabilities associated with nonfinancial leverage from notable to moderate, noting that measures of business leverage had declined to pre-pandemic levels. Household delinquency rates remained relatively low, while household borrowing rose but was concentrated among prime borrowers. Vulnerabilities arising from financial leverage remained moderate. Risk-based capital ratios for banks remained above their pre-pandemic levels even after the resumption of shareholder payouts. In contrast, some available measures of hedge fund leverage continued to increase, and important data gaps continued to limit a full assessment of vulnerabilities posed by many nonbank financial institutions. Vulnerabilities associated with funding risks were characterized as moderate. Prime and tax-exempt money funds continued to have structural vulnerabilities that may lead investors to withdraw funds quickly in a stress situation and were a potential source of spillovers to other short-term funding markets. In response, the Securities and Exchange Commission proposed reforms in December 2021 to make these funds more resilient. Another vulnerability in funding markets was the significant growth in stablecoin arrangements over the past few years, which may increase challenges related to run risk and pose additional risks from their potential role as a means of payment.

Staff Economic Outlook The near-term projection for U.S. economic activity prepared by the staff for the January FOMC meeting was weaker than in December, reflecting the sharp rise in COVID-19 infections caused by the rapid spread of the Omicron variant and an assessment that supply constraints would resolve more slowly than previously expected. Although real GDP still appeared to have posted a sizable gain in the fourth quarter of 2021, output growth was expected to slow noticeably in the first quarter of 2022 before picking up again later in the year as COVID-19 cases declined and supply issues continued to be resolved. With most of the boost to growth from the reopening of the economy and easing of supply constraints expected to occur in 2022, real GDP growth was projected to step down in 2023 and to be roughly in line with potential growth in 2023 and 2024. However, the level of real GDP was expected to remain well above potential throughout the projection period, and labor market conditions were expected to remain very tight.

The staff's near-term projection for PCE price inflation was revised up relative to December in response to the anticipated slower resolution of supply issues. In particular, the staff continued to expect that monthly inflation rates would move lower as supply constraints eased, but the projected step-down was less pronounced than in the December forecast. Even so, an improvement in supply conditions and a decline in consumer energy prices were expected to slow PCE price inflation to 2.6 percent in 2022. With supply conditions expected to normalize further but with the labor market expected to remain very tight, PCE price inflation was projected to decline to 2 percent in 2023 before edging up to 2.1 percent in 2024.

The staff continued to judge that the risks to the baseline projection for economic activity were skewed to the downside and that the risks to the inflation projection were skewed to the upside. In particular, the possibility that the economic effects of the virus would turn out to be larger than assumed in the baseline projection was viewed as an important source of downside risk to activity, while the possibility of more severe and more persistent supply issues was viewed as an additional downside risk to activity and as an upside risk to inflation.

Participants' Views on Current Conditions and the Economic Outlook In their discussion of current economic conditions, participants noted that indicators of economic activity and employment had continued to strengthen. The sectors most adversely affected by the pandemic had improved in recent months but continued to be affected by the recent sharp rise in COVID-19 cases. Job gains had been solid in recent months, and the unemployment rate had declined substantially. Supply and demand imbalances related to the pandemic and the reopening of the economy had continued to contribute to elevated levels of inflation. Overall financial conditions had remained accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses. Participants judged that the path of the economy continued to depend on the course of the virus. Progress on vaccinations and an easing of supply constraints were expected to support continued gains in economic activity and employment as well as a reduction in inflation. Risks to the economic outlook remained, including from new variants of the virus.

With regard to the economic outlook, participants agreed that the Omicron wave of the pandemic would weigh on economic activity in the first quarter of 2022. Indeed, sectors of the economy that are particularly sensitive to pandemic-related disruptions, including travel, leisure, and restaurants, were experiencing sharp reductions in activity as a result of the Omicron wave. Participants commented that, for many afflicted individuals and families, the virus continued to cause great hardship. Participants concurred that if the Omicron wave dissipated quickly, then economic activity would likely strengthen rapidly and economic growth for 2022 as a whole would be robust. Participants cited strong household balance sheets, rising wages, and effective adaptation to the pandemic by the business sector as factors supporting the outlook for strong growth this year. However, a number of participants noted that there was a risk that additional variants could weigh on economic activity this year.

Participants noted that supply chain bottlenecks and labor shortages had continued to limit businesses' ability to meet strong demand, with these challenges exacerbated by the emergence and spread of the Omicron variant. In particular, the Omicron wave had led to much more widespread worker absences due to illness, virus exposure, or caregiving needs, which had curtailed activity in many sectors including airlines, trucking, and warehousing. Some participants reported that their business contacts were hopeful that the effects of the Omicron wave would be relatively short lived. Nevertheless, several participants reported that their contacts expected the ongoing labor shortages and other supply constraints to persist well after the acute effects of the Omicron wave had waned. Participants' contacts also reported continued widespread input cost pressures, which, amid generally robust demand, they reported having largely been able to pass on to their customers. A few participants commented that agricultural businesses were experiencing higher input costs, and those higher costs were putting strain on the finances of those firms even as they experienced generally strong demand for their products.

In their discussion of the household sector, many participants noted that the onset of the Omicron wave had damped consumer demand, particularly for services, with much of the recent weakness concentrated in high-contact sectors such as travel, dining, and leisure and hospitality. Almost all of those participants anticipated that household demand would recover briskly if the Omicron wave subsided quickly, with spending supported by strong household balance sheets that were bolstered by high rates of saving earlier in the pandemic and ongoing robust gains in labor income.

Participants noted that the labor market had made remarkable progress in recovering from the recession associated with the pandemic and, by most measures, was now very strong. Increases in employment had been solid in recent months; the unemployment rate had declined sharply, reaching 3.9 percent in December; job openings and quits were near record high levels; and nominal wages were rising at the fastest pace in decades. Several participants commented that the gains, on balance, over recent months had been broad based, with notable improvements for lower-wage workers as well as African Americans and Hispanics. Against this backdrop of a generally strong and improving labor market, many participants observed that the effects of the Omicron variant likely would only temporarily suppress the rate of labor market gains. The labor force participation rate had edged up further over the past few months, and some participants indicated that they expected it to continue to increase as the pandemic eased. A couple of participants noted that the participation rate remained lower than trend levels that account for changing demographics.

Participants noted that their District contacts were reporting that labor demand remained historically strong and that labor supply remained constrained, resulting in a broad shortage of workers across many parts of the economy. As a result, there was widespread evidence that the labor market was very tight, including near-record rates of quits and job vacancies as well as nominal wage growth that was the highest recorded in decades. Several participants reported that District business contacts were either planning to implement or had implemented larger wage increases than those of recent years to retain current employees or attract new workers. A few participants also reported contacts having been forced to reduce operating hours or close businesses temporarily because of labor shortages.

Acknowledging that the maximum level of employment consistent with price stability evolves over time, participants expressed a range of views regarding their assessments of current labor market conditions relative to the Committee's goal of maximum employment. Many participants commented that they viewed labor market conditions as already at or very close to those consistent with maximum employment, citing indications of strong labor markets including the low levels of unemployment rates, elevated wage pressures, near-record levels of job openings and quits, and a broad shortage of workers across many parts of the economy. A couple of participants commented that, in their view, the economy likely had not yet reached maximum employment, noting that, even for prime-age workers, labor force participation rates were still lower than those that prevailed before the pandemic or that a reallocation of labor across sectors could lead to higher levels of employment over time.

Participants remarked that recent inflation readings had continued to significantly exceed the Committee's longer-run goal and elevated inflation was persisting longer than they had anticipated, reflecting supply and demand imbalances related to the pandemic and the reopening of the economy. However, some participants commented that elevated inflation had broadened beyond sectors most directly affected by those factors, bolstered in part by strong consumer demand. In addition, various participants cited other developments that had the potential to place additional upward pressure on inflation, including real wage growth in excess of productivity growth and increases in prices for housing services. Participants acknowledged that elevated inflation was a burden on U.S. households, particularly those who were least able to pay higher prices for essential goods and services. Some participants reported that their business contacts remained concerned about persistently high inflation and that they were adjusting their business practices to cope with higher input costs—for instance, by raising output prices or utilizing contracts that were contingent on their costs. Participants generally expected inflation to moderate over the course of the year as supply and demand imbalances ease and monetary policy accommodation is removed. Some participants remarked that longer-term measures of inflation expectations appeared to remain well anchored, which would support a return of inflation over time to levels consistent with the Committee's goals.

In their discussion of risks to the outlook, participants agreed that uncertainty regarding the path of inflation was elevated and that risks to inflation were weighted to the upside. Participants cited several such risks, including the zero-tolerance COVID-19 policy in China that had the potential to further disrupt supply chains, the possibility of geopolitical turmoil that could cause increases in global energy prices or exacerbate global supply shortages, a worsening of the pandemic, persistent real wage growth in excess of productivity growth that could trigger inflationary wage–price dynamics, or the possibility that longer-term inflation expectations could become unanchored. A few participants pointed to the possibility that structural factors that had contributed to low inflation in the previous decade, such as technological changes, demographics, and a low real interest rate environment, may reemerge when the effects of the pandemic abate. Uncertainty about real activity was also seen as elevated. Various participants noted downside risks to the outlook, including a possible worsening of the pandemic, the potential for escalating geopolitical tensions, or a substantial tightening in financial conditions.

Participants who commented on issues related to financial stability cited a number of factors that could represent potential vulnerabilities to the financial system. A few participants noted that asset valuations were elevated across a range of markets and raised the concern that a major realignment of asset prices could contribute to a future downturn. A couple of these participants judged that prolonged accommodative financial conditions could be contributing to financial imbalances. A couple of other participants cited reasons why elevated asset valuations might prove to be less of a threat to financial stability than in past reversals of asset prices. In particular, they noted the relatively healthy balance sheet positions of households and nonfinancial firms, the well-capitalized and liquid banking sector, and the fact that the rise in housing prices was not being fueled by a large increase in mortgage debt as suggesting that the financial system might prove resilient to shocks. Some participants saw emerging risks to financial stability associated with the rapid growth in crypto-assets and decentralized finance platforms. A few participants pointed to risks associated with highly leveraged, nonbank financial institutions or the potential vulnerability of prime money market funds to a sudden withdrawal of liquidity.

In their consideration of the stance of monetary policy, participants agreed that it would be appropriate for the Committee to keep the target range for the federal funds rate at 0 to 1/4 percent in support of the Committee's objectives of maximum employment and inflation at the rate of 2 percent over the longer run. They also anticipated that it would soon be appropriate to raise the target range. In discussing why beginning to remove policy accommodation could soon be warranted, participants noted that inflation continued to run well above 2 percent and generally judged the risks to the outlook for inflation as tilted to the upside. Participants also assessed that the labor market was strong, having made substantial, broad-based progress over the past year.

In light of elevated inflation pressures and the strong labor market, participants continued to judge that the Committee's net asset purchases should be concluded soon. Most participants preferred to continue to reduce the Committee's net asset purchases according to the schedule announced in December, bringing them to an end in early March. A couple of participants stated that they favored ending the Committee's net asset purchases sooner to send an even stronger signal that the Committee was committed to bringing down inflation.

Participants discussed the implications of the economic outlook for the likely timing and pace for removing policy accommodation. Compared with conditions in 2015 when the Committee last began a process of removing monetary policy accommodation, participants viewed that there was a much stronger outlook for growth in economic activity, substantially higher inflation, and a notably tighter labor market. Consequently, most participants suggested that a faster pace of increases in the target range for the federal funds rate than in the post-2015 period would likely be warranted, should the economy evolve generally in line with the Committee's expectation. Even so, participants emphasized that the appropriate path of policy would depend on economic and financial developments and their implications for the outlook and the risks around the outlook, and they will be updating their assessments of the appropriate setting for the policy stance at each meeting. Participants noted that the removal of policy accommodation in current circumstances depended on the timing and pace of both increases in the target range of the federal funds rate and the reduction in the size of the Federal Reserve's balance sheet. In this context, a number of participants commented that conditions would likely warrant beginning to reduce the size of the balance sheet sometime later this year.

In their discussion of the outlook for monetary policy, many participants noted the influence on financial conditions of the Committee's recent communications and viewed these communications as helpful in shifting private-sector expectations regarding the policy outlook into better alignment with the Committee's assessment of appropriate policy. Participants continued to stress that maintaining flexibility to implement appropriate policy adjustments on the basis of risk-management considerations should be a guiding principle in conducting policy in the current highly uncertain environment. Most participants noted that, if inflation does not move down as they expect, it would be appropriate for the Committee to remove policy accommodation at a faster pace than they currently anticipate. Some participants commented on the risk that financial conditions might tighten unduly in response to a rapid removal of policy accommodation. A few participants remarked that this risk could be mitigated through clear and effective communication of the Committee's assessments of the economic outlook, the risks around the outlook, and the appropriate path for monetary policy.

Committee Policy Action In their discussion of monetary policy for this meeting, members agreed that indicators of economic activity and employment had continued to strengthen. They noted that the sectors most adversely affected by the pandemic had improved in recent months but were being affected by the recent sharp rise in COVID-19 cases. Job gains had been solid in recent months, and the unemployment rate had declined substantially. Members remarked that supply and demand imbalances related to the pandemic and the reopening of the economy had continued to contribute to elevated levels of inflation. Overall financial conditions remained accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses. Members also acknowledged that the path of the economy continued to depend on the course of the virus. Progress on vaccinations and an easing of supply constraints were expected to support continued gains in economic activity and employment as well as a reduction in inflation, but risks to the economic outlook remained, including from new variants of the virus.

In order to support the Committee's maximum-employment and price-stability objectives, members agreed to keep the target range for the federal funds rate at 0 to 1/4 percent. With inflation well above 2 percent and a strong labor market, members expected that it would soon be appropriate to raise the target range for the federal funds rate. Members agreed to continue to reduce the monthly pace of the Committee's net asset purchases, bringing them to an end in early March. Specifically, beginning in February, the Committee would increase its holdings of Treasury securities by at least $20 billion per month and of agency MBS by at least $10 billion per month. Members noted that the Federal Reserve's ongoing asset purchases and holdings of securities would continue to foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses.

Members agreed that, in assessing the appropriate stance of monetary policy, they would continue to monitor the implications of incoming information for the economic outlook and that they would be prepared to adjust the stance of monetary policy as appropriate in the event that risks emerged that could impede the attainment of the Committee's goals. They also concurred that, in assessing the appropriate stance of monetary policy, they would take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments.

Members agreed to remove the opening sentence from previous postmeeting statements regarding using the Federal Reserve's full range of tools to support the U.S. economy. This language was adopted during the height of the financial market turmoil in March 2020, when the Committee began its asset purchase program, and members acknowledged that it was no longer warranted in light of the strong economy as well as the Committee's announcement that net asset purchases would end in early March. Members agreed that the postmeeting statement should be updated to reflect the Committee's expectation that it would soon be appropriate to raise the target range for the federal funds rate in light of elevated inflation pressures and the strong labor market.

At the conclusion of the discussion, the Committee voted to authorize and direct the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the SOMA in accordance with the following domestic policy directive, for release at 2:00 p.m.:

"Effective January 27, 2022, the Federal Open Market Committee directs the Desk to:

The vote also encompassed approval of the statement below for release at 2:00 p.m.:

"Indicators of economic activity and employment have continued to strengthen. The sectors most adversely affected by the pandemic have improved in recent months but are being affected by the recent sharp rise in COVID-19 cases. Job gains have been solid in recent months, and the unemployment rate has declined substantially. Supply and demand imbalances related to the pandemic and the reopening of the economy have continued to contribute to elevated levels of inflation. Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses.

The path of the economy continues to depend on the course of the virus. Progress on vaccinations and an easing of supply constraints are expected to support continued gains in economic activity and employment as well as a reduction in inflation. Risks to the economic outlook remain, including from new variants of the virus.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent. With inflation well above 2 percent and a strong labor market, the Committee expects it will soon be appropriate to raise the target range for the federal funds rate. The Committee decided to continue to reduce the monthly pace of its net asset purchases, bringing them to an end in early March. Beginning in February, the Committee will increase its holdings of Treasury securities by at least $20 billion per month and of agency mortgage‑backed securities by at least $10 billion per month. The Federal Reserve's ongoing purchases and holdings of securities will continue to foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses.

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 policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments."

Voting for this action: Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; James Bullard; Esther L. George; Patrick Harker; Loretta J. Mester; and Christopher J. Waller.

Voting against this action: None.

Patrick Harker voted as an alternate member at this meeting.

Consistent with the Committee's decision to leave the target range for the federal funds rate unchanged, the Board voted unanimously to maintain the interest rate paid on reserve balances at 0.15 percent, effective January 27, 2022. The Board also voted unanimously to approve the establishment of the primary credit rate at the existing level of 0.25 percent.

It was agreed that the next meeting of the Committee would be held on Tuesday–Wednesday, March 15–16, 2022. The meeting adjourned at 10:10 a.m. on January 26, 2022.

Notation Vote By notation vote completed on January 4, 2022, the Committee unanimously approved the minutes of the Committee meeting held on December 14–15, 2021.

_______________________ James A. Clouse Secretary