As a senior economist and central bank strategist, I have performed a comparative analysis of the FOMC statements from November 2, 2022, and December 14, 2022.
Recent indicators point to modest growth in spending and production. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures.
Russia's war against Ukraine is causing tremendous human and economic hardship. The war and related events are ~~creating additional~~ contributing to upward pressure on inflation and are weighing on global economic activity. 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. In support of these goals, the Committee decided to raise the target range for the federal funds rate to ~~3-3/4 to 4 percent~~ 4-1/4 to 4-1/2 percent. The Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time. In determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in the Plans for Reducing the Size of the Federal Reserve's Balance Sheet that were issued in 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; Michael S. Barr; Michelle W. Bowman; Lael Brainard; James Bullard; Susan M. Collins; Lisa D. Cook; Esther L. George; Philip N. Jefferson; Loretta J. Mester; and Christopher J. Waller.
For media inquiries, please email [email protected] or call 202-452-2955.
Implementation Note issued ~~November 2, 2022~~ December 14, 2022
| Removed | Added | Significance |
|---|---|---|
| 3-3/4 to 4 percent | 4-1/4 to 4-1/2 percent | Monetary Tightening: A 50bps increase in the target range, continuing the aggressive tightening cycle. |
| creating additional | contributing to | Nuance Shift: A subtle softening of the language regarding the war's impact on inflation (from "creating" to "contributing"). |
| November 2, 2022 | December 14, 2022 | Administrative update. |
Inflation
The characterization of inflation remains largely unchanged; it is still described as "elevated" and driven by the same structural imbalances. However, there is a subtle linguistic shift regarding the war in Ukraine. Moving from "creating additional upward pressure" to "contributing to upward pressure" suggests the Committee may perceive the marginal impact of the war as stabilizing, even if the overall level of inflation remains problematic.
Labor Markets & Growth
There is zero change in the language regarding spending, production, and job gains. The Committee continues to view the labor market as "robust" and the unemployment rate as "low." This indicates that, at this juncture, the Fed does not yet see a significant cooling of the labor market that would necessitate a pause in rate hikes.
Forward Guidance
The forward guidance is identical to the previous statement. The Committee maintains its commitment to "ongoing increases" and continues to emphasize the "cumulative tightening" and "lags" of monetary policy. This signals a steady, data-dependent path toward a "sufficiently restrictive" stance without signaling a definitive end-point or a pivot.
The Committee remained Neutral to slightly Hawkish. While the actual policy action was Hawkish (a 50bps rate hike), the text of the statement was remarkably stable. The preservation of the "ongoing increases" language confirms the Hawkish trajectory. However, the subtle softening of the language regarding the war's inflationary pressure suggests a very slight move toward a more measured tone. Overall, the statement signals "steady as she goes"—the Fed is continuing its aggressive tightening campaign without changing its fundamental narrative or outlook.