MPR Expects Fed will soon raise FFR target range

The US Federal Reserve on Friday released its semiannual Monetary Policy Report (MPR), which it normally does one week ahead of Fed Chair Jerome Powell’s semiannual testimony before the US Congress. The report reiterated the Fed’s policy guidance that it will soon be appropriate to raise the target range for the Federal Funds rate.

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With Omicron cases having declined sharply since mid-January, the US slowdown is expected to be brief.
The FOMC expects it will soon be appropriate to raise the target range for the federal funds rate.
Inflation readings over the second half of the year suggested that broader-based inflationary pressures had taken hold.
Recent geopolitical tensions related to the Russia–Ukraine situation are a source of uncertainty in global financial and commodity markets.
Upward pressure on inflation from prices of goods experiencing both supply chain bottlenecks and strong demand, such as motor vehicles and furniture, has persisted.

The Fed continues to evaluate the potential systemic risks posed by hedge funds and digital assets and is closely monitoring the transition away from LIBOR.

A wide range of indicators have been pointing to a very tight labour market.

The share of categories seeing price increases of 3% or more is above 60% but still below the share seen in the 1970s.

It is too early to tell what the ultimate effect of the pandemic will be on productivity growth in the coming years.

Share of higher inflation in services in recent months likely in part due to labour market inflation pressures.

With appropriate policy, inflation is expected to decline over the course of the year as supply constraints ease and demand moderates.

Geopolitical tensions with Russia have also contributed to higher energy prices, including oil and natural gas.