June 16, 2022
Overall economic activity has seemingly improved when compared the first quarter of 2022, with increased job gains and low unemployment. Inflation, however, remains elevated due to supply and demand imbalances from the pandemic, higher energy prices, and broader price pressures.
The invasion of Ukraine by Russia has led to upward inflationary pressures as well as the recent COVID-19 lockdowns in China are expected to lead to further supply chain disruptions.
The long-term goals are maximum employment and inflation at a rate of 2 percent over the longer run. To achieve this and reduce inflation, the Committee has raised the target range for the federal funds rate to 1.5% to 1.75% and anticipates future increases to the target rate. Furthermore, the committee will continue to reduce the money supply of the economy by reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities.
The Committee will be assessing a wide range of information including public health, labor market, inflation as well as financial and international developments to evaluate an appropriate stance of monetary policy.
Decisions regarding the Monetary Policy Implementation
- The Interest rates paid on reserve balances will be raised to 1.65%, effective June 16, 2022.
- Undertake open market operations to maintain a federal funds rate in the range of 1.5% to 1.75%.
- Conduct an overnight repurchase agreement operation with a minimum bid rate of 1.75% and an aggregation operation limit of $500 billion which can be temporarily increased at the discretion of the chair.
- Principal payments from Treasury securities maturing in June and July which exceed the $30 billion per month cap will be rolled over at auction.
- Reinvest the amount of principal payments from the holding of agency debt and agency Mortgage-backed securities (MBS) received in June and July that exceed the $17.5 Billion per month cap back into agency MBS.
- Principal payments from the holding of agency debt and agency mortgage-based securities (MBS) received in June and July which exceed the $17.5 Billion per month cap should be reinvested back into Agency MBS.
- Allow Modest deviations from the stated amounts for reinvestments, if needed for operational reasons.
- Use dollar roll and coupon swap transactions to facilitate settlement of the Fed’s MBS transactions.
- The Board Governors of the Federal Reserve System voted to increase the primary credit rate by 0.75% to 1.75%, effective June 16, 2022.
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