As a senior economist and central bank strategist, I have performed a comparative analysis of the FOMC statements from May 4 and June 15, 2022. This period represents a critical pivot toward aggressive tightening to combat surging inflation.
Overall economic activity appears to have picked up after edging down in the first quarter, ~~household spending and business fixed investment remained strong.~~ Job gains have been robust in recent months, and the unemployment rate has ~~declined substantially~~ remained low. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures.
The invasion of Ukraine by Russia is causing tremendous human and economic hardship. ~~The implications for the U.S. economy are highly uncertain.~~ The invasion and related events are creating additional upward pressure on inflation and are weighing on global ~~likely to weigh on~~ economic activity. In addition, COVID-related lockdowns in China are likely to exacerbate supply chain disruptions. The Committee is highly attentive to inflation risks.
The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. ~~With appropriate firming in the stance of monetary policy, the Committee expects inflation to return to its 2 percent objective and the labor market to remain strong.~~ In support of these goals, the Committee decided to raise the target range for the federal funds rate to 1-1/2 to 1-3/4 percent ~~3/4 to 1 percent~~ and anticipates that ongoing increases in the target range will be appropriate. In addition, the Committee will continue ~~decided to begin~~ reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities ~~on June 1~~, as described in the Plans for Reducing the Size of the Federal Reserve's Balance Sheet that were issued in ~~conjunction with this statement~~ May. The Committee is strongly committed to returning inflation to its 2 percent objective.
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 the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; James Bullard; Lisa D. Cook; Patrick Harker; Philip N. Jefferson; Loretta J. Mester; and Christopher J. Waller. Voting against this action was Esther L. George, who preferred at this meeting to raise the target range for the federal funds rate by 0.5 percentage point to 1-1/4 percent to 1-1/2 percent. ~~Esther L. George;~~ Patrick Harker voted as an alternate member at this meeting.
| Removed | Added | Significance |
|---|---|---|
| "3/4 to 1 percent" | "1-1/2 to 1-3/4 percent" | Aggressive Tightening: A 75bps hike, signaling a shift to larger increments to combat inflation. |
| "expects inflation to return... with appropriate firming" | "strongly committed to returning inflation to its 2 percent objective" | Shift in Conviction: Moves from a conditional expectation to a firm commitment/mandate. |
| "likely to weigh on economic activity" | "weighing on global economic activity" | Certainty of Impact: Shifts from a probability ("likely") to a statement of fact ("are weighing"). |
| "declined substantially" (unemployment) | "remained low" | Labor Market Peak: Suggests the unemployment rate has bottomed out and is now stabilizing. |
| Unanimous vote | Dissent by Esther L. George | Internal Friction: Reveals a split in the committee regarding the pace of tightening. |
The characterization of inflation has shifted from a "risk" to a "mission." In May, the Committee noted it was "highly attentive to inflation risks." By June, they added the phrase "strongly committed to returning inflation to its 2 percent objective." This is a critical linguistic upgrade; it signals that the Fed is no longer just monitoring the situation but is now in an active, aggressive campaign to force inflation down.
The Committee has shifted its view on economic momentum. The May statement noted activity "edged down," but the June statement notes it "appears to have picked up." Simultaneously, the description of the unemployment rate changed from "declined substantially" to "remained low." This suggests the Fed believes the economy is robust enough to withstand significantly higher interest rates without triggering an immediate collapse in employment.
The guidance has become more aggressive. While both statements mention "ongoing increases," the actual action (a 75bps hike vs. the previous 25bps) provides the real guidance. Furthermore, the removal of the sentence regarding "appropriate firming" in exchange for a "strong commitment" suggests the Fed is moving away from gradualism toward a more rapid tightening cycle.
Verdict: Strongly Hawkish
The Committee has shifted significantly in a Hawkish direction. This is evidenced by three primary factors: first, the acceleration of the rate hike (moving to a 75bps increase); second, the transition from "attentive" to "strongly committed" regarding the 2% inflation target; and third, the acknowledgment that economic activity has "picked up," which provides the Committee with the "policy space" to raise rates more aggressively without fearing an immediate recession. Even the dissent by Esther George was "dovish" relative to the majority, as she preferred a smaller 50bps hike, further highlighting the aggressive stance of the rest of the Committee.