The Federal Open Market Committee will further slow its bond buying as the economy continues to strengthen. In its December 2021 meeting statement, the Federal Reserve said that strong policy support and progress on vaccinations have benefited the economy.
Job gains have been solid in recent months, and the unemployment rate has declined substantially. Supply and demand imbalances related to the pandemic and the reopening of the economy have continued to contribute to elevated levels of inflation.
The path of the economy continues to depend on the course of the virus and new variants. However, progress on vaccinations and an easing of supply constraints are expected to support continued gains in economic activity and employment as well as a reduction in inflation.
The Committee kept the target range for short-term interest rates near zero and expects it will be appropriate to maintain this target until it meets the goals of maximum employment and price stability. The FOMC will continue to monitor new information on the economy and adjust their stance on monetary policy if needed.
What does this mean for you? Let’s rewind.
December 2021 FOMC Rewind
Quick explainer for the December 2021 FOMC decision (video, 1:25 minutes).
Transcript
Ellen: Hi Varsha! Saw the Fed in my feed–what’s up?
Varsha: Hey there! Yeah, the economy is getting stronger and inflation is still high.
Varsha: So the Fed is dialing back its support by buying fewer bonds.
Ellen: How does that work?
Varsha: Along with low interest rates, buying bonds helped businesses get financing during the pandemic.
Ellen: So, if the economy is getting back on track…
Varsha: Then we don’t need as much help!
Ellen: Is the Fed worried that prices will keep going up?
Varsha: They’re keeping an eye on inflation. Some prices went up mostly because it’s taking a while for supplies (like cars, computer chips, and Christmas trees) to catch up with demand.
Varsha: But they expect that to ease. And it’s just part of what the Fed is watching.
Ellen: What else are they watching?
Varsha: Well, with the economy picking up, companies are having a lot of trouble filling jobs.
Ellen: Totally, I’ve definitely had some friends who have gotten pickier about the sort of job they’ll take.
Varsha: Right, the Fed thinks this may be holding back the labor market.
Varsha: But it also means employers are willing to pay workers more.
Ellen: Oh boy, that sounds like a lot to keep track of!
Varsha: Yep–the Fed is doing what it can to help the economy move in the right direction.
Ellen: Let me know if things change!
Varsha: Will do!
You may also be interested in:
The views expressed here do not necessarily reflect the views of the management of the Federal Reserve Bank of San Francisco or of the Board of Governors of the Federal Reserve System.