FOMC raises federal funds rate by 25bps to 5.25-5.50% as widely expected, by unanimous vote. The accompanying statement is like a carbon copy for the June’s one. The one exception is:
“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 5-1/4 to 5-1/2 percent.”
Fed will continue to “continue to assess additional information and its implications for monetary policy.”
Full statement below:
Recent indicators suggest that economic activity has been expanding at a moderate pace. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated.
The U.S. banking system is sound and resilient. Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. The extent of these effects remains uncertain. The Committee remains 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 5-1/4 to 5-1/2 percent. The Committee will continue to assess additional information and its implications for monetary policy. In determining the extent of additional policy firming that may be appropriate to return inflation to 2 percent over time, 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 its previously announced plans. 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 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; Lisa D. Cook; Austan D. Goolsbee; Patrick Harker; Philip N. Jefferson; Neel Kashkari; Lorie K. Logan; and Christopher J. Waller.
BoJ Ueda: We will not tolerate 10-year JGB yield above 1%
At the post-meeting press conference, BoJ Governor Kazuo Ueda explained the details of the changes on monetary policy announced today. That includes explaining the decision to buy 10-year JGB yields at 1% in fixed-rate operations, an increase from the previous rate of 0.5%.
“We will not tolerate an increase in the 10-year bond yield above 1% and will step in if it does,” Ueda emphasized. While yield moves between 0.5% and 1%, BoJ will monitor the yield level, pace of change, and speed, and conduct various market operations to counter any excessive upward pressure on long-term interest rates.
He added, “We don’t expect the yield to move up to 1%, but have set this cap as a pre-emptive measure.”
Turning to inflation, Ueda confessed to underestimating the upward pressure on prices, leading to a significant upward revision of the inflation forecast for the current fiscal year. He noted that many board members perceive risks as skewed to the upside amid high uncertainty over the outlook.
Speaking on the Yield Curve Control (YCC), Ueda warned,”It would be pretty tough to deal with upside (inflation) risks once they materialise”. Given the current stability in the bond market and high uncertainty over the outlook, he termed this as a fitting moment to adjust the policy framework.
But Ueda also reiterated the bank’s unchanged view on the significant distance to achieving their price target as a trend and the appropriateness of maintaining an easy monetary policy. “As for what we will do ahead, if inflation overshoots, we will respond appropriately,” he assured.