At the Federal Reserve we are strongly committed to achieving the monetary policy goals that Congress has given us maximum
employment and price stability. Today in support of these goals the Federal Open Market
Committee kept its policy interest rate near zero and stated its expectation that an increase in this rate would soon be
appropriate. The committee also agreed to continue reducing its net asset
purchases on the schedule we announced in December bringing them to an end in early March.
As they will explain. Against a backdrop of elevated inflation and a strong labor market. Our policy has been adapting to the
evolving economic environment and it will continue to do so. Economic activity expanded at a robust pace last year reflecting
progress on vaccinations and the reopening of the economy. Fiscal and monetary policy support and the healthy financial
positions of households and businesses. Indeed the economy has shown great strength and resilience in the face of the ongoing
pandemic. The recent sharp rise in Covid cases associated with the Micron
variant will surely weigh on economic growth this quarter. High frequency indicators point to reduced spending in Covid
sensitive sectors such as travel and restaurants. And activity more broadly may also be affected as many workers
are unable to report for work because of illness quarantines or caregiving needs.
Fortunately health experts are finding that the current variant has not been as virulent as previous strains of the virus and
they expect that cases will drop off rapidly. If the wave passes quickly the economic effects should as well.
And we would see a return to strong growth. That said the implications for the economy remain uncertain and
we have not lost sight of the fact that for many afflicted individuals and families and for the health care workers on the
front lines the virus continues to cause great hardship. The labor market has made remarkable progress and by many
measures is very strong job gains have been solid in recent months averaging three hundred sixty five thousand per month
over the past three months. Over the past year payroll employment has risen by six point
four million jobs. The unemployment rate has declined sharply falling two percentage points over the past six months to reach
three point nine percent in December. The improvement in labor market conditions have been widespread
including for workers at the lower end of the wage distribution as well as for African-Americans and Hispanics.
Labor demand remains historically strong. With constraints on labor supply employers are having
difficulties filling job openings and wages are rising at their fastest pace in many years.
Well labor force participation has edged up. It remains subdued in part reflecting the aging of the population and retirements.
In addition some who would otherwise would be seeking work report that they are out of the labor force because of factors
related to the pandemic including caregiving needs and ongoing concerns about the virus.
The current wave of the virus may well prolong these effects. Over time there are good reasons to expect some further
improvements in participation and employment. Inflation remains well above our longer run goal of 2 percent.
Supply and demand imbalances related to the pandemic and the reopening of the economy have continued to contribute to
elevated levels of inflation. In particular bottlenecks and supply constraints are limiting how quickly production can
respond to higher demand in the near term. These problems have been larger and longer lasting than
anticipated exacerbated by waves of the virus. While the drivers of higher inflation have been predominantly
connected to the dislocations caused by the pandemic. Price increases have now spread to a broader range of goods and
services. Wages have also risen briskly and we are attentive to the risks that persistent real wage growth in excess of
productivity could put upward pressure on inflation. Like most forecasters we continue to expect inflation to decline
over the course of the year. We understand that high inflation imposes significant hardship
especially on those least able to meet the high higher costs of essentials like food housing and transportation. In addition we
believe that the best thing we can do to support continued labor market gains is to promote a long expansion and that will
require price stability. We're committed to our price stability goal. We will use our
tools both to support the economy and a strong labor market and to prevent higher inflation from becoming entrenched.
And we'll be watching carefully to see whether the economy is evolving in line with expectations.
The Fed's monetary policy actions have been guided by our mandate to promote maximum employment and stable prices for the
American people. As I noted the committee left the target range for the federal
funds rate unchanged and reaffirmed our plan announced in December to end asset purchases in early March.
In light of the remarkable progress we've seen in the labor market and inflation that is well above our 2 percent longer run
goal. The economy no longer needs sustained high levels of monetary policy support. That is why we are phasing out our
asset purchases in ways we expected will soon be appropriate to raise the target range for the federal funds rate.
Of course the economic outlook remains highly uncertain. Making appropriate monetary policy in this environment requires
humility recognizing that the economy evolves in unexpected ways. We'll need to be nimble so that we can respond to the full
range of plausible outcomes. With this in mind we will remain attentive to risks including the risk that high inflation is
more persistent than expected and are prepared to respond as appropriate to achieve our goals.
To provide greater clarity about our approach for reducing the size of the Federal Reserve's balance sheet today the committee
issued a set of principles that will provide a foundation for our future decisions. These high level principles clarify that
the federal funds rate is our primary means of adjusting monetary policy and reducing our balance sheet will occur after
the process of raising interest rates has begun. Reductions will occur over time in a predictable manner
primarily through adjustments to reinvestments so that securities roll off our balance sheet.
Over time we intend to hold securities in the amounts needed for our ample reserves operating framework and in the longer run we
envision holding primarily Treasury securities. Our decisions to reduce our balance sheet will be guided by our
maximum employment and price stability goals. In that regard we will be prepared to adjust any of the details
of our approach to balance sheet management. In light of economic and financial developments
the committee has not made decisions regarding the specific timing pace or other details of shrinking the balance sheet. We
will discuss these matters in upcoming meetings and provide additional information at the appropriate time.
To conclude we understand that our actions affect communities families and businesses across the country. Everything we do is
in service to our public mission. We at the Federal Reserve will do everything we can to achieve our maximum employment and price
stability goals.