The Federal Open Market Committee said that with inflation well above 2% and a strong labor market, it expects it will soon be appropriate to raise the target range for the federal funds rate in its January 2022 meeting statement.
The Federal Reserve noted that 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.
The path of the economy continues to depend on the course of the virus and new variants. However, 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.
The Committee kept the target range for short-term interest rates near zero and will further slow its bond buying. It will monitor conditions as the economy continues to strengthen and adjust the stance on monetary policy if needed.
What does this mean for you? Let’s rewind.
January 2022 FOMC Rewind
Quick explainer for the January 2022 FOMC decision (video, 1:26 minutes).
Transcript
Curtis: Sarah! Did the Fed just meet?
Sarah: Yeah, they did! The economy’s getting stronger so they’re thinking about when to raise interest rates
Curtis: Remind me how that works?
Sarah: At the start of COVID, the Fed lowered rates and took other actions to get the economy back on track
Curtis: Gotcha. So, if the economy is strong enough…
Sarah: Then the Fed can start downshifting soon
Curtis: Okay, but I keep hearing about inflation. What’s the Fed saying about that?
Sarah: With the economy growing, people are buying more, but supplies for a lot of things are low, and the shortages mean that stores have been raising prices
Curtis: Wait, so how does raising interest rates help?
Sarah: Well, it can’t solve shortages right now, but it can help make sure demand doesn’t get too far ahead of supply, as the economy continues to grow
Curtis: What else is the Fed watching?
Sarah: The labor market. With a lot of jobs to fill, it’s great for workers’ wages, but it can also feed into inflation later
Sarah: Plus they’re always keeping an eye on new COVID threats
Curtis: Totally. That’s something we’re all watching
Sarah: Our health keeps the economy healthy
Curtis: Absolutely! Stay safe
Sarah: You too!
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The views expressed here do not necessarily reflect the views of the management of the Federal Reserve Bank of San Francisco or of the Board of Governors of the Federal Reserve System.