Participants' Views on Current Conditions and the Economic Outlook
In conjunction with this FOMC meeting, participants submitted their projections of the most likely outcomes for real GDP growth, the unemployment rate, and inflation for each year from 2022 through 2024 and over the longer run based on their individual assessments of appropriate monetary policy, including the path of the federal funds rate. The longer-run projections represented each participant's assessment of the rate to which each variable would be expected to converge, over time, under appropriate monetary policy and in the absence of further shocks to the economy. A Summary of Economic Projections (SEP) was released to the public following the conclusion of the meeting.
In their discussion of current economic conditions, participants noted that overall economic activity appeared to have picked up after edging down in the first quarter. Job gains had been robust in recent months, and the unemployment rate had remained low. Inflation remained elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures. Participants recognized that the invasion of Ukraine by Russia was causing tremendous human and economic hardship for the Ukrainian people. Participants judged that the invasion and related events were creating additional upward pressure on inflation and were weighing on global economic activity. In addition, participants indicated that COVID-related lockdowns in China were likely to exacerbate supply chain disruptions. Against this background, participants stated that they were highly attentive to inflation risks.
With regard to the economic outlook, participants noted that recent indicators suggested that real GDP growth was expanding in the current quarter, with consumption spending remaining strong. Participants generally judged that growth in business fixed investment appeared to be slowing, and activity in the housing sector appeared to be softening, in part as a result of a sharp rise in mortgage rates. Correspondingly, participants indicated that they had revised down their projections of real GDP growth for this year, consistent with ongoing supply chain disruptions and tighter financial conditions. Participants noted that the imbalance between supply and demand across a wide range of product markets was contributing to upward pressure on inflation. They saw an appropriate firming of monetary policy and associated tighter financial conditions as playing a central role in helping address this imbalance and in supporting the Federal Reserve's goals of maximum employment and price stability. An easing of supply bottlenecks, a further rise in labor force participation, and the waning effects of pandemic-related fiscal policy support were cited as additional factors that could help reduce the supply–demand imbalances in the economy and therefore lower inflation over the next few years. That said, the timing and magnitude of these effects were uncertain. Participants saw little evidence to date of a substantial improvement in supply constraints, and some of them judged that the economic effects of these constraints were likely to persist longer than they had previously anticipated. Participants stressed the need to adjust the stance of policy in response to incoming information regarding the evolution of these and other factors.
In their discussion of the household sector, participants indicated that consumption spending had remained robust, in part reflecting strong balance sheets in the household sector and a tight labor market. Several participants noted that household spending patterns appeared to be shifting away from goods to services. Several participants indicated that some of their contacts reported that the pace of consumer spending, though strong, was beginning to moderate. One reason cited for this moderation was that the purchasing power of households was being reduced by higher prices for food, energy, and other essentials. Participants generally expected higher mortgage interest rates to contribute to further declines in home sales, and a couple of participants noted that housing activity in their Districts had begun to slow noticeably. Against the backdrop of rising borrowing costs and higher gasoline and food prices, a couple of participants commented that consumer sentiment had dropped notably in June, according to the preliminary reading in the Michigan survey.
With respect to the business sector, participants observed that their contacts generally reported that sales remained strong, although some contacts indicated that sales had begun to slow and that they had become less optimistic about the outlook. In many industries, the ability of firms to meet demand continued to be limited by labor shortages and supply chain bottlenecks. Firms relying on international sources for their inputs were seen as encountering particularly acute supply chain disruptions. Supply constraints, labor shortages, and rising input costs were also reportedly limiting energy and agricultural producers' ability to take advantage of the higher prices of their products by investing and expanding their production capacity. Similarly, a few participants noted that, in other sectors of the economy, their contacts reported that they were postponing investment or construction projects because of rising input and financing costs. With supply challenges still widespread, contacts continued to assess that supply constraints overall were significant, and many of them judged that these constraints were likely to persist for some time.
Participants noted that the demand for labor continued to outstrip available supply across many parts of the economy. They observed that various indicators pointed to a very tight labor market. These indicators included an unemployment rate near a 50-year low, job vacancies at historical highs, and elevated nominal wage growth. Additionally, most business contacts had continued to report persistent wage pressures as well as difficulties in hiring and retaining workers. However, some contacts reported that, because of previous wage hikes, hiring and retention had improved and pressure for additional wage increases appeared to be receding.
More Articles
- Board of Governors of the Federal Reserve System: Something’s Got to Give by Governor Christopher J. Waller
- Attorney General Merrick B. Garland Delivers Commencement Address to the Harvard Classes of 2020 and 2021 Cambridge, MA ~ Sunday, May 29, 2022
- The Horror; A “Vacuum Bomb"; Do You Remember the First Time You Heard the Term 'Atomic Bomb'?
- From The Desk of Secretary Antony J. Blinken, US Department of State
- Federal Reserve Chair Jerome H. Powell: Getting Back to a Strong Labor Market
- GAO: COVID-19 Complicates Already Challenged FDA Foreign Inspection Program; It Could Be 2 to 3 Years Before New Staff Are Experienced Enough To Conduct Foreign Inspection
- FactCheck Post: The Facts on Trump’s Travel Restrictions: "We Don't Have a Travel Ban; We Have a Travel Band-Aid Right Now"
- Travelers from Countries with Widespread Sustained Transmission of COVID-19 Arriving in the US; CDC is Working to Implement After-travel Health Precautions and EPA Disinfectants for Use Against SARS-CoV-2
- *GAO SCIENCE & TECH SPOTLIGHT: Coronaviruses: "They can cause respiratory issues, such as pneumonia, and are believed to be one cause of the common cold"
- Updated: Speaker Pelosi's Statement on President Trump’s Budget Request on Coronavirus Response; CDC Travel Notices Affecting International Travelers; Cruise Ship Travel in Asia