Federal Reserve Press conference comparison — 3 November 2021 vs 26 January 2022
This Federal Reserve press conference comparison covers 3 November 2021 and 26 January 2022. Overall, the newer document was more hawkish. The overall shift from November 2021 to January 2022 is a decisive hawkish pivot across all topics: inflation is deemed persistent, the labor market very strong, rate hikes imminent in March, and balance sheet reduction to follow quickly. The prior document's cautious separation of tapering from rate hikes is replaced by a clear tightening stance, signaling the start of a rate hike cycle.
What changed
More hawkish. The overall shift from November 2021 to January 2022 is a decisive hawkish pivot across all topics: inflation is deemed persistent, the labor market very strong, rate hikes imminent in March, and balance sheet reduction to follow quickly. The prior document's cautious separation of tapering from rate hikes is replaced by a clear tightening stance, signaling the start of a rate hike cycle.
- Inflation — More hawkish. The current document drops the transitory narrative and explicitly describes inflation as persistent and well above target, signaling urgency for tightening.
- Labour Market — More hawkish. The current document introduces a strongly hawkish labour market assessment, describing it as very strong and supportive of rate hikes.
- Rate Path — More hawkish. The current document signals an imminent rate hike in March, a stark pivot from the prior document's separation of tapering and rate policy.
- Balance Sheet — More hawkish. The current document announces the end of asset purchases and signals faster and earlier balance sheet runoff, a hawkish addition.
Key wording
Today, the FOMC kept interest rates near zero and, in light of the progress the economy has made toward our goals, decided to begin reducing the pace of asset purchases.
If the economy evolves broadly as expected, we judge that similar reductions in the pace of net asset purchases will likely be appropriate each month, implying that increases in our securities holdings would cease by the middle of next year.
Our decision today to begin tapering our asset purchases does not imply any direct signal regarding our interest rate policy. We continue to articulate a different and more stringent test for the economic conditions that would need to be met before raising the federal funds rate.
Nonetheless, it remains the case that the drivers of higher inflation have been predominantly connected to the dislocations caused by the pandemic—specifically, the effects on supply and demand from the shutdown, the uneven reopening, and the ongoing effects of the virus itself.
Supply constraints have been larger and longer lasting than anticipated.
If we were to see signs that the path of inflation, or [of] longer-term inflation expectations, was moving materially and persistently beyond levels consistent with our goal, we would use our tools to preserve price stability.
kept its policy interest rate near zero and stated its expectation that an increase in this rate would soon be appropriate.
it will soon be appropriate to raise the target range for the federal funds rate.
I would say that the Committee is, is of a mind to, to raise the federal funds rate at the March meeting, assuming that conditions are appropriate for doing so.
Inflation remains well above our longer-run goal of 2 percent. Supply and demand imbalances related to the pandemic and [to] the reopening of the economy have continued to contribute to elevated levels of inflation. These problems have been larger and longer lasting than anticipated, exacerbated by waves of the virus.
We do realize that the timing and pace of that are, are highly uncertain and that inflation has persisted longer than we—than we thought.
the idea that, for example, the federal funds rate is the primary means of adjusting the stance of policy, that we’ll use—determine the timing and pace of reducing the size of the balance sheet to foster the dual mandate, that we’ll begin to reduce the size after we begin the process of raising rates
Official documents
Background reading
Related
3 November 2021 press conference · 26 January 2022 press conference · Earlier meeting · Later meeting · Previous comparison · Next comparison · Methodology
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