FOMC Press Conference December 15, 2021 Introductory Statement | Summary and Q&A

TL;DR

Chair Powell discusses the Federal Reserve's commitment to achieving maximum employment and price stability, announces an accelerated reduction in asset purchases, and addresses concerns about inflation and the Omicron variant.

Key Insights

• 🛄 The Federal Reserve's monetary policy actions aim to achieve maximum employment and price stability.
• 😮 Economic activity is expected to expand robustly, but the rise in COVID cases and the emergence of the Omicron variant pose risks to the outlook.
• 📼 The Federal Reserve has decided to accelerate the reduction of asset purchases due to the strengthening labor market and elevated inflation pressures.
• 🧑‍🏭 Labor force participation remains subdued, reflecting various pandemic-related factors.
• 🪘 Inflation has exceeded the Federal Reserve's 2 percent longer-run goal and could remain elevated for longer, prompting the need for appropriate policy action.
• 😚 The Federal Reserve maintains a close watch on financial stability risks, including global sovereign yields, money market funds, and the developments in the cryptocurrency sector.
• ⚾ The Federal Reserve is prepared to adjust policy decisions based on evolving economic conditions and data.

Transcript

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Questions & Answers

Q: How does the Federal Reserve define maximum employment and how will it know when that threshold has been met?

Maximum employment is assessed based on a broad range of indicators, including the unemployment rate, labor force participation rate, job openings, wages, and flows in and out of the labor force. The Committee will make a judgment based on various factors. Currently, the rapid progress in the labor market suggests that the economy is moving towards maximum employment.

Q: If the economy slows down and inflation falls next year due to the Omicron variant or other factors, will the Federal Reserve delay rate hikes?

The Federal Reserve's rate decisions depend on its evolving assessment of the economic forecast. If the economy slows down significantly, it could postpone rate hikes. However, the Committee will always prioritize its dual mandate of maximum employment and price stability.

Q: How does the Federal Reserve view labor force participation, and what factors could contribute to a meaningful recovery in participation rates?

The Federal Reserve acknowledges that labor force participation remains subdued. The pandemic-related factors, such as health concerns, lack of childcare, strong financial positions, and aging population, have contributed to the slow recovery. The decline in participation may take time to reverse, and the resolution of the pandemic and supportive conditions are crucial for a meaningful recovery.

Q: Are there any financial stability risks of concern to the Federal Reserve, such as the cryptocurrency sector?

The Federal Reserve closely monitors financial stability risks and follows a comprehensive framework. While stablecoins and the broader cryptocurrency sector pose concerns, the immediate financial-stability risks are not high. However, the absence of appropriate regulation and potential systemically important payment networks could pose future risks. Cybersecurity threats, especially successful cyberattacks on major financial institutions or market utilities, remain a significant concern.

Summary & Key Takeaways

• The Federal Reserve remains committed to achieving maximum employment and price stability.

• The Federal Open Market Committee has decided to speed up the reduction of asset purchases in response to the strengthening labor market and elevated inflation pressures.

• Economic activity is on track for robust growth, but the rise in COVID cases and the emergence of the Omicron variant pose risks to the outlook.