Federal Reserve Press conference comparison — 27 July 2022 vs 14 December 2022

This Federal Reserve press conference comparison covers 27 July 2022 and 14 December 2022. Overall, the newer document was mixed. The December FOMC communication represents a clear hawkish shift on the rate path, raising the terminal rate projection and emphasizing higher-for-longer, while inflation language slightly softens to acknowledge progress but remains cautious. Labour market assessment is unchanged. The next decision will likely feature a step-down in pace but continued hikes to reach a higher terminal rate, with no rate cuts on the horizon.

What changed

Mixed. The December FOMC communication represents a clear hawkish shift on the rate path, raising the terminal rate projection and emphasizing higher-for-longer, while inflation language slightly softens to acknowledge progress but remains cautious. Labour market assessment is unchanged. The next decision will likely feature a step-down in pace but continued hikes to reach a higher terminal rate, with no rate cuts on the horizon.

Inflation — More dovish. Prior highlighted inflation exceeding expectations at 9.1%; current acknowledges welcome reduction but stresses inflation remains far above target and core services sticky, shifting tone to cautiously hawkish.
Labour Market — Little changed. Labour market remains described as strong and tight, with no material softening in characterisation.
Rate Path — More hawkish. Shift from a mix of hawkish and dovish signals to a uniformly hawkish stance, with higher terminal rate projections and explicit commitment to avoid premature loosening.
Balance Sheet — Little changed. No balance sheet references in either document; no change.

Key wording

27 July 2022

At today’s meeting, the Committee raised the target range for the federal funds rate by ¾ of a percentage point, bringing the target range to 2¼ to 2½ percent.
rate path: Rate hike decision - 75bp as expected, but level now at neutral estimate.

We anticipate that ongoing increases in the target range for the federal funds rate will be appropriate; the pace of those increases will continue to depend on the incoming data and the evolving outlook for the economy.
rate path: Ongoing hikes confirmed but pace data-dependent, leaving optionality.

While another unusually large increase could be appropriate at our next meeting, that is a decision that will depend on the data we get between now and then.
rate path: Open to another 75bp in September if inflation persists.

As the stance of monetary policy tightens further, it likely will become appropriate to slow the pace of increases while we assess how our cumulative policy adjustments are affecting the economy and inflation.
rate path: First explicit signal of eventual slowdown in hiking pace, a potential pivot.

This process is likely to involve a period of below-trend economic growth and some softening in labor market conditions.
rate path: Acknowledges recession risk as necessary cost of lowering inflation.

Over the 12 months ending in May, total PCE prices rose 6.3 percent; ... In June, the 12-month change in the consumer price index came in above expectations at 9.1 percent
inflation: Highlights inflation still far above target and exceeding expectations.

14 December 2022

Today, the FOMC raised our policy interest rate by ½ percentage point. We continue to anticipate that ongoing increases will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time.
rate path: 50bp hike confirms tightening; ongoing increases signal further hikes ahead.

In light of the cumulative tightening of monetary policy and the lags with which monetary policy affects economic activity and inflation, the Committee decided to raise interest rates by 50 basis points today, a step-down from the 75 basis point pace seen over the previous four meetings. Of course, 50 basis points is still a historically large increase, and we still have some ways to go.
rate path: Step-down signals moderation in pace, but 'still have some ways to go' keeps tightening bias.

As shown in the SEP, the median projection for the appropriate level of the federal funds rate is 5.1 percent at the end of next year, ½ percentage point higher than projected in September.
rate path: Higher terminal rate projection implies rates will stay higher for longer.

The historical record cautions strongly against prematurely loosening policy. We will stay the course until the job is done.
rate path: Signals Fed will not ease prematurely, reinforcing commitment to restrictive stance.

I would say it’s our judgment today that we’re not at a sufficiently restrictive policy stance yet, which is why we say that we would expect that ongoing hikes would be appropriate. And I would point you to the SEP again for our current assessment of what that peak level will be. As you will have seen, 19 people filled out the SEP this time, and 17 of those 19 wrote down a peak rate of 5 percent or more—in the 5s.
rate path: Explicitly not yet restrictive enough; median peak rate rises to 5%+, above market expectations.

The inflation data received so far for October and November show a welcome reduction in the monthly pace of price increases. But it will take substantially more evidence to give confidence that inflation is on a sustained downward path.
inflation: Cautious welcome of lower inflation; need for more evidence keeps Fed alert.

Official documents

Background reading

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