February 2022 Monetary Policy Report

The report now describes significantly higher inflation, with PCE at 5.8 percent, and a labor market at full employment. It notes the FOMC began phasing out asset purchases and expects to raise rates soon, replacing the prior stance of continued purchases and near-zero rates. Financial conditions have tightened as markets anticipate policy tightening.

Inflation

• The report now describes PCE inflation at 5.8 percent over the 12 months ending in December, up from 3.9 percent in May, and notes it is the highest in about 40 years. Read the section
  Quotes

  Previous report: “PCE (personal consumption expenditures) prices rose 3.9 percent over the 12 months ending in May.”

  This report: “The personal consumption expenditures (PCE) price index rose 5.8 percent over the 12 months ending in December, and the index that excludes food and energy items (so-called core inflation) was up 4.9 percent—the highest readings for both measures in roughly 40 years.”

• The report now says the Dallas trimmed mean index rose 3.1 percent for the year, its highest since 1991, whereas the previous report described muted movements, indicating inflation has broadened. Read the section
  Quotes

  Previous report: “The price acceleration appears to have arisen largely from a small number of categories, as suggested by muted movements in the Dallas trimmed mean index, which removes the largest price changes.”

  This report: “the Federal Reserve Bank of Dallas trimmed mean index, which removes the PCE categories with the largest price increases and decreases each month, rose only modestly in the first half of last year but picked up in the second half and increased 3.1 percent for the year as a whole—its highest reading since 1991.”

Labor market

• The report now says the unemployment rate fell to 4 percent in January, reaching the FOMC's longer-run normal estimate, whereas previously it was well below pre-pandemic levels. Read the section
  Quotes

  Previous report: “employment has remained well below pre-pandemic levels.”

  This report: “the unemployment rate reaching the median of Federal Open Market Committee (FOMC) participants' estimates of its longer-run normal level”  ·  “the unemployment rate has plummeted almost 2 percentage points since June and, at 4 percent in January, has reached the median of FOMC participants' estimates of its longer-run normal level.”

• The report now highlights job openings about 60 percent above pre-pandemic levels, up from the previous report's 30 percent, indicating a tighter labor market. Read the section
  Quotes

  Previous report: “job openings jumped to about 30 percent above the average level for 2019”

  This report: “By the end of the year, the number of unfilled job openings was about 60 percent above pre-pandemic levels and at an all-time high.”

Financial conditions

• The report now notes Treasury yields increased notably since mid-2021 as markets moved up the expected start of policy tightening, whereas previously financing conditions had eased further. Read the section
  Quotes

  Previous report: “Overall financing conditions for businesses and households eased further since February, as market-based lending conditions remained accommodative and bank-lending conditions eased markedly.”

  This report: “Yields on nominal Treasury securities across maturities increased notably since mid-2021, with much of the increase having occurred in the past couple of months, as the expected timing for the beginning of the removal of monetary policy accommodation has moved forward significantly.”

Financial stability

• The report now highlights rapid growth of stablecoins, exceeding $150 billion, and their potential susceptibility to runs, a topic not previously mentioned. Read the section
  Quotes

  This report: “The market value of stablecoins exceeded $150 billion as of January 2022.”

Monetary policy

• The report now says the FOMC began phasing out asset purchases in November and expects to raise the policy rate soon, replacing the prior stance of continued purchases and near-zero rate. Read the section
  Quotes

  Previous report: “the Federal Open Market Committee (FOMC) held its policy rate near zero and continued to purchase Treasury securities and agency mortgage-backed securities to support the economic recovery.”

  This report: “The Committee began phasing out net asset purchases in November and accelerated the pace of the phaseout in December; net asset purchases will end in early March”  ·  “the Committee expects it will soon be appropriate to raise the target range for the federal funds rate”

• The report now describes a gradual reduction in the monthly pace of net asset purchases, with purchases ending in early March, whereas previously it described purchases continuing at a fixed pace until substantial further progress. Read the section
  Quotes

  Previous report: “continued to expand its holdings of Treasury securities by $80 billion per month and its holdings of agency mortgage-backed securities (MBS) by $40 billion per month”  ·  “increases in the holdings of Treasury securities and agency MBS in the System Open Market Account will continue at least at this pace until substantial further progress has been made toward its maximum-employment and price-stability goals since the Committee adopted its asset purchase guidance last December”

  This report: “At its January meeting, the Committee decided to continue to reduce the monthly pace of net purchases and conclude net purchases in early March.”  ·  “At its December meeting—in light of inflation developments and further improvement in the labor market—the Committee decided to double the pace of reductions in its net asset purchases, implying that increases in securities holdings would cease by mid-March.”

• The report now describes many foreign central banks as tightening or signaling future tightening, whereas the previous report said monetary policy abroad remained accommodative. Read the section
  Quotes

  Previous report: “Monetary policy abroad remained accommodative, as central banks focused on supporting growth and viewed the recent rise in inflation as transitory.”

  This report: “In light of elevated inflation, many policymakers are moving to reduce the significant monetary stimulus undertaken since the start of the pandemic.”

• The report now projects the federal funds rate to rise to 0.875 percent by end-2022, whereas previously it was near zero through 2022. Read the section
  Quotes

  Previous report: “Uncertainty and risks in projections of the federal funds rate — Median: 2021: 0.1; 2022: 0.1; 2023: 0.6”

  This report: “FOMC participants' assessments of appropriate monetary policy: Midpoint of target range or target level for the federal funds rate — 0.875: 2021: 10”

These points are generated automatically by comparing the two reports' text, and each quote is checked against the report it's cited from.