Monetary Policy Report, July 5, 2024

Board of Governors of the Federal Reserve System

For use at 11:00 a.m. EDT

July 5, 2024

Monetary Policy rePort

July 5, 2024

Letter of transmittaL

B  G  

F R S

Washington, D.C., July 5, 2024

T P   S

T S   H  R

The Board of Governors is pleased to submit its Monetary Policy Report pursuant to

section 2B of the Federal Reserve Act.

Sincerely,

Jerome H. Powell, Chair

statement on Longer-run goaLs and monetary PoLicy strategy

Adopted effective January24, 2012; as reafrmed effective January30, 2024

The Federal Open Market Committee (FOMC) is rmly committed to fullling its statutory mandate from

the Congress of promoting maximum employment, stable prices, and moderate long-term interest rates. The

Committee seeks to explain its monetary policy decisions to the public as clearly as possible. Such clarity

facilitates well-informed decisionmaking by households and businesses, reduces economic and nancial

uncertainty, increases the eectiveness of monetary policy, and enhances transparency and accountability,

which are essential in a democratic society.

Employment, ination, and long-term interest rates uctuate over time in response to economic and nancial

disturbances. Monetary policy plays an important role in stabilizing the economy in response to these

disturbances. The Committee’s primary means of adjusting the stance of monetary policy is through changes

in the target range for the federal funds rate. The Committee judges that the level of the federal funds rate

consistent with maximum employment and price stability over the longer run has declined relative to its

historical average. Therefore, the federal funds rate is likely to be constrained by its eective lower bound

more frequently than in the past. Owing in part to the proximity of interest rates to the eective lower bound,

the Committee judges that downward risks to employment and ination have increased. The Committee is

prepared to use its full range of tools to achieve its maximum employment and price stability goals.

The maximum level of employment is a broad-based and inclusive goal that is not directly measurable

and changes over time owing largely to nonmonetary factors that aect the structure and dynamics of the

labor market. Consequently, it would not be appropriate to specify a xed goal for employment; rather, the

Committee’s policy decisions must be informed by assessments of the shortfalls of employment from its

maximum level, recognizing that such assessments are necessarily uncertain and subject to revision. The

Committee considers a wide range of indicators in making these assessments.

The ination rate over the longer run is primarily determined by monetary policy, and hence the Committee

has the ability to specify a longer-run goal for ination. The Committee rearms its judgment that ination

at the rate of 2percent, as measured by the annual change in the price index for personal consumption

expenditures, is most consistent over the longer run with the Federal Reserve’s statutory mandate. The

Committee judges that longer-term ination expectations that are well anchored at 2percent foster price

stability and moderate long-term interest rates and enhance the Committee’s ability to promote maximum

employment in the face of signicant economic disturbances. In order to anchor longer-term ination

expectations at this level, the Committee seeks to achieve ination that averages 2percent over time, and

therefore judges that, following periods when ination has been running persistently below 2percent,

appropriate monetary policy will likely aim to achieve ination moderately above 2percent for some time.

Monetary policy actions tend to inuence economic activity, employment, and prices with a lag. In setting

monetary policy, the Committee seeks over time to mitigate shortfalls of employment from the Committee’s

assessment of its maximum level and deviations of ination from its longer-run goal. Moreover, sustainably

achieving maximum employment and price stability depends on a stable nancial system. Therefore, the

Committee’s policy decisions reect its longer-run goals, its medium-term outlook, and its assessments of

the balance of risks, including risks to the nancial system that could impede the attainment of the

Committee’s goals.

The Committee’s employment and ination objectives are generally complementary. However, under

circumstances in which the Committee judges that the objectives are not complementary, it takes into account

the employment shortfalls and ination deviations and the potentially dierent time horizons over which

employment and ination are projected to return to levels judged consistent with its mandate.

The Committee intends to review these principles and to make adjustments as appropriate at its annual

organizational meeting each January, and to undertake roughly every 5years a thorough public review of its

monetary policy strategy, tools, and communication practices.

Summary .................................................................1

Recent Economic and Financial Developments ................................... 1

Monetary Policy ........................................................... 3

Special Topics ............................................................. 3

Part 1: Recent Economic and Financial Developments .....................5

Domestic Developments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Financial Developments .................................................... 30

International Developments ................................................. 36

Part 2: Monetary Policy ..................................................41

Part 3: Summary of Economic Projections ................................53

Abbreviations ............................................................71

contents

Note: This report reects information that was publicly available as of noon EDT on July2, 2024.

Unless otherwise stated, the time series in the gures extend through, for daily data, June28, 2024; for monthly data,

May2024; and, for quarterly data, 2024:Q1. In bar charts, except as noted, the change for a given period is measured to

its nal quarter from the nal quarter of the preceding period.

For gures 26, 37, and 43, note that the S&P/Case-Shiller U.S. National Home Price Index, the S&P 500 Index, and the Dow Jones Bank Index are

written permission of S&P Dow Jones Indices LLC. For more information on any of S&P Dow Jones Indices LLC’s indices, please visit www.spdji.com.

S&P® is a registered trademark of Standard & Poor’s Financial Services LLC, and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings

LLC. Neither S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their afliates, nor their third-party licensors make any representation or

warranty, express or implied, as to the ability of any index to accurately represent the asset class or market sector that it purports to represent, and neither

S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their afliates, nor their third-party licensors shall have any liability for any errors, omis-

sions, or interruptions of any index or the data included therein.

List of Boxes

Housing Services Ination and Market Rent Measures .............................. 9

Employment and Earnings across Demographic Groups ............................ 16

Developments Related to Financial Stability ..................................... 33

Monetary Policy Independence, Transparency, and Accountability .................... 42

Developments in the Federal Reserve’s Balance Sheet and Money Markets .............. 47

Monetary Policy Rules in the Current Environment ................................ 50

Forecast Uncertainty ....................................................... 68

Ination eased notably last year and has

shown modest further progress so far this

year, but it remains above the Federal Open

Market Committee’s (FOMC) objective of

2percent. Job gains have been strong, and the

unemployment rate is still low. Meanwhile, as

job vacancies continued to decline and labor

supply continued to increase, the labor market

moved into better balance over the rst half of

the year. Real gross domestic product (GDP)

growth was modest in the rst quarter, while

growth in private domestic demand remained

robust, supported by slower but still-solid

increases in consumer spending, moderate

growth in capital spending, and a sharp pickup

in residential investment.

The FOMC has maintained the target range

for the federal funds rate at 5¼ to 5½percent

since its July2023 meeting. In addition,

the Committee has continued to reduce its

holdings of Treasury securities and agency

mortgage-backed securities. The Committee

does not expect it will be appropriate to

reduce the target range until it has gained

greater condence that ination is moving

sustainably toward 2percent. Reducing policy

restraint too soon or too much could result in

a reversal of the progress on ination. At the

same time, reducing policy restraint too late

or too little could unduly weaken economic

activity and employment. In considering any

adjustments to the target range for the federal

funds rate, the Committee will carefully assess

incoming data, the evolving outlook, and the

balance of risks.

The FOMC is strongly committed to

returning ination to its 2percent objective.

The Committee remains highly attentive

to ination risks and is acutely aware that

high ination imposes signicant hardship,

especially on those least able to meet the higher

costs of essentials.

Recent Economic and Financial

Developments

Ination. Although personal consumption

expenditures (PCE) price ination slowed

notably last year and has shown modest

further progress this year, it remains above the

FOMC’s longer-run objective of 2percent.

The PCE price index rose 2.6percent over

the 12months ending in May, down from the

4.0percent pace over the preceding 12 months

and a peak of 7.1percent in June2022.

The core PCE price index—which excludes

food and energy prices and is generally

considered a better guide to the direction

of future ination—also rose 2.6percent in

the 12months ending in May, down from

4.7percent a year ago and slower than the

2.9percent pace at the end of last year. On a

12-month basis, core goods price ination and

housing services price ination continued to

ease over the rst part of the year, while core

nonhousing services price ination attened

out after slowing notably last year. Measures

of longer-term ination expectations are

within the range of values seen in the decade

before the pandemic and continue to be

broadly consistent with the FOMC’s longer-

run objective of 2percent.

The labor market. The labor market continued

to rebalance over the rst half of this year,

and it remained strong. Job gains were solid,

averaging 248,000 per month over the rst ve

months of the year, and the unemployment

rate remained low. Labor demand has eased, as

job openings have declined in many sectors of

the economy, and labor supply has continued

to increase, supported by a strong pace of

immigration. With cooling labor demand and

rising labor supply, the unemployment rate

edged up to 4.0percent in May. The balance

between labor demand and supply appears

similar to that in the period immediately

summary

2 SUMMARY

before the pandemic, when the labor market

was relatively tight but not overheated.

Nominal wage growth continued to slow in

the rst part of the year but remains above a

pace consistent with 2percent ination over

the longer term, given prevailing trends in

productivity growth.

Economic activity. Real GDP growth is

reported to have moderated in the rst

quarter after having increased at a robust

pace in the second half of last year. Much

of the slowdown was due to sizable drags

in the volatile categories of net exports and

inventory investment; growth in private

domestic nal purchases—which includes

consumer spending, business xed investment,

and residential investment—also moved a

little lower in the rst quarter but remained

solid. Real consumption growth slowed in the

rst quarter from a strong pace in the second

half of last year, reecting a decline in goods

spending. Real business xed investment

grew at a moderate pace in the rst quarter

despite high interest rates, supported by strong

sales growth and improvements in business

sentiment and prot expectations. Activity in

the housing sector picked up sharply in the

rst quarter as a result of a jump in existing

home sales and rising construction of single-

family homes.

Financial conditions. Financial conditions

appear somewhat restrictive on balance.

Treasury yields and the market-implied

expected path of the federal funds rate have

moved up, on net, since the beginning of

the year, while broad equity prices have

increased. Credit remains generally available

to most households and businesses but at

elevated interest rates, which have weighed on

nancing activity. The pace of bank lending

to households and businesses increased in the

rst ve months of the year but continues

to be somewhat tepid. Delinquency rates on

small business loans stayed slightly above

pre-pandemic levels, and delinquency rates for

credit cards, auto loans, and commercial real

estate loans continued to increase in the rst

quarter of 2024 to levels above their longer-

run averages.

Financial stability. The nancial system

remains sound and resilient. The balance

sheets of nonnancial businesses and

households stayed strong, with the combined

credit-to-GDP ratio standing near its two-

decade low. Business debt continued to decline

in real terms, and debt-servicing capacity

remained solid for most public rms, in

large part due to strong earnings, large cash

buers, and low borrowing costs on existing

debt. However, there were also signs of

vulnerabilities building in the nancial system.

In asset markets, corporate bond spreads

narrowed, equity prices rose faster than

expected earnings, and residential property

prices remained high relative to market rents.

Moreover, in the banking sector, some banks’

fair value losses on xed-rate assets remained

sizable, despite most of them continuing to

report solid capital levels. Additionally, parts

of banks’ commercial real estate portfolios

are facing stress. Some banks’ reliance on

uninsured deposits remained high. Even so,

liquidity at most domestic banks remained

ample, with limited reliance on short-term

wholesale funding. Bond mutual funds’

exposure to interest rate risk stayed elevated,

and data through the third quarter of 2023

show that hedge fund leverage had grown to

historical highs, driven primarily by borrowing

by the largest hedge funds. (See the box

“Developments Related to Financial Stability”

in Part 1.)

International developments. Foreign economic

activity appears to have improved in the rst

quarter after a soft patch in the second half

of last year. In advanced foreign economies,

growth rates returned to moderate levels

despite the eects of restrictive monetary

policy as lower ination improved real

household incomes. In emerging market

economies, growth was supported by a

recovery in exports and rising global demand

for high-tech products, with the rise in activity

in China in the rst quarter being particularly

MONETARY POLICY REPORT: JULY 2024 3

outsized. Nonetheless, other factors continued

to weigh on economic growth: Data indicated

ongoing weakness in China’s property sector,

and in Europe, energy-intensive sectors

continue to struggle, reecting their ongoing

adjustment to past increases in energy prices

following Russia’s 2022 invasion of Ukraine.

Foreign headline ination has continued to

decline since the middle of last year, but the

pace of disination has been gradual and

uneven across countries and economic sectors.

Still, many foreign central banks have noted

this progress in lowering ination, and some

have begun to cut their policy rates. A notable

exception is Japan, which ended its negative

interest rate policy and yield curve control in

March amid persistently high ination. The

trade-weighted exchange value of the dollar

rose signicantly, consistent with widening

gaps between U.S. and foreign interest rates.

Monetary Policy

Interest rate policy. The FOMC has

maintained the target range for the policy

rate at 5¼ to 5½percent since its July2023

meeting. The Committee judges that the risks

to achieving its employment and ination

goals have moved toward better balance

over the past year. The Committee perceives

the economic outlook to be uncertain

and remains highly attentive to ination

risks. The Committee has indicated that

it does not expect it will be appropriate to

reduce the target range until it has gained

greater condence that ination is moving

sustainably toward 2percent. Policy is

well positioned todeal with the risks and

uncertainties the Committee faces in pursuing

both sides of its dual mandate. In considering

any adjustments to the target range for

the federal funds rate, the Committee will

carefully assess incoming data, the evolving

outlook, and the balance of risks.

Balance sheet policy. The Federal Reserve

has continued the process of signicantly

reducing its holdings of Treasury and agency

securities in a predictable manner.

Beginning

in June2022, principal payments from

securities held in the System Open Market

Account have been reinvested only to the

extent that they exceeded monthly caps. Under

this policy, the Federal Reserve has reduced

its securities holdings about $1.7trillion since

the start of balance sheet reduction. The

FOMC has stated that it intends to maintain

securities holdings at amounts consistent with

implementing monetary policy eciently and

eectively in its ample-reserves regime. To

ensure a smooth transition from abundant to

ample reserve balances, the FOMC slowed

the pace of decline of its securities holdings

at the beginning of June and intends to

stop reductions when reserve balances are

somewhat above the level that the Committee

judges to be consistent with ample reserves.

Special Topics

Housing services ination. The PCE price

index for housing services started accelerating

in 2021, notably increasing its contribution

to core PCE ination. Because this index

calculates average rent for all tenants—both

new tenants and existing tenants—its changes

tend to lag changes in market rent measures

for new leases. Therefore, measures of market

rent growth for new leases can help predict

future changes in the PCE price index. Since

mid-2022, market rents have decelerated

and returned to a growth rate similar to or

below their average pre-pandemic pace, while

the PCE index continues to show elevated

ination, reecting the gradual pass-through

of market rates to existing tenants. As this

process continues, PCE housing services

ination should gradually decline, though

much uncertainty remains about the extent

1. See the May4, 2022, press release regarding the

Plans for Reducing the Size of the Federal Reserve’s

Balance Sheet, available on the Board’s website at https://

www.federalreserve.gov/newsevents/pressreleases/

monetary20220504b.htm.

4 SUMMARY

and timing. (See the box “Housing Services

Ination and Market Rent Measures”

in Part 1.)

Employment and earnings across groups. A

strong labor market over the past two years

has been especially benecial for historically

disadvantaged groups of workers. As a

result, many of the long-standing disparities

in employment and wages by sex, race,

ethnicity, and education have narrowed, and

some gaps reached historical lows in 2023

and the rst half of 2024. However, despite

this narrowing, signicant disparities in

absolute levels across groups remain. (See

the box “Employment and Earnings across

Demographic Groups” in Part 1.)

Monetary policy independence, transparency,

and accountability. Congress has established

a statutory framework that species the

long-run objectives of monetary policy—

maximum employment and stable prices—

and gives the Federal Reserve operational

independence in conducting monetary policy.

In this framework, the Federal Reserve

makes determinations about the monetary

policy actions that are most appropriate

for achieving the dual-mandate goals that

Congress has assigned to it. The Federal

Reserve recognizes that independence is

a trust given to it by Congress and the

American people and that with independence

comes the need to be transparent about,

and accountable for, its monetary policy

decisions. Transparency also improves

monetary policy’s eectiveness. The Federal

Reserve promotes transparency by providing

information about FOMC decisions through

policy communications and a variety of

publications. The means by which the Federal

Reserve informs the American people

about its monetary policy decisions include

ocial FOMC statements, monetary policy

reports, and Committee meeting minutes

and transcripts, as well as speeches, press

conferences, and congressional testimony

given by Federal Reserve ocials. (See

the box “Monetary Policy Independence,

Transparency, and Accountability” in Part 2.)

Federal Reserve’s balance sheet and money

markets. The size of the Federal Reserve’s

balance sheet has continued to decrease

since February as the FOMC has reduced

its securities holdings. Reserve balances, the

largest liability on the Federal Reserve’s balance

sheet, and usage of the overnight reverse

repurchase agreement facility—another Federal

Reserve liability—both declined. (See the

box “Developments in the Federal Reserve’s

Balance Sheet and Money Markets” in Part2.)

Monetary policy rules. Simple monetary policy

rules, which prescribe a setting for the policy

interest rate in response to the behavior of

a small number of economic variables, can

provide useful guidance to policymakers. With

ination easing over the past year, the policy

rate prescriptions of most simple monetary

policy rules have decreased recently and now

call for levels of the federal funds rate that are

close to or below the current target range for

the federal funds rate. (See the box “Monetary

Policy Rules in the Current Environment”

inPart2.)

Domestic Developments

Ination eased notably last year and

has shown modest further progress in

recentmonths

Ination stepped down markedly last year

and has shown modest further progress so

far this year. Ination remains elevated,

though, and is still above the Federal Open

Market Committee’s (FOMC) longer-run

objective of 2percent. The price index for

personal consumption expenditures (PCE)

rose 2.6percent over the 12 months ending in

May, down from the 4.0percent pace a year

ago but little changed since the end of last year

(gure1). After having slowed markedly in the

second half of 2023, monthly core PCE price

ination—which excludes food and energy

prices and is generally considered a better

guide to the direction of future ination—

rmed in the rst quarter of this year and

then eased somewhat in April and May. As a

result, the 12-month change in core PCE prices

declined from the 4.7percent pace in May

of last year to 2.9percent in December and

moved down further this year, to 2.6percent

in May (gure2). A similar message is

evident from the trimmed mean measure

of PCE prices constructed by the Federal

Reserve Bank of Dallas, which provides an

alternative approach to reducing the inuence

of idiosyncratic price movements. The index

increased 2.8percent over the 12months

ending in May, a pace that is somewhat slower

than at the end of last year (as shown in

gure1).

Consumer energy prices have

increased, while food price ination has

attenedout

PCE energy prices increased 4.8percent in the

12 months ending in May after having declined

12.3percent over the preceding 12 months

Part 1

recent economic and financiaL deveLoPments

Total

Excluding food and energy

Percent change from year earlier

20242023202220212020201920182017

1. Personal consumption expenditures price indexes

Monthly

SOURCE: For trimmed mean, Federal Reserve Bank of Dallas; for a

else, Bureau of Economic Analysis; all via Haver Analytics.

Trimmed mean

6-month change

12-month change

Percent, annual rate

20242023202220212020201920182017

2. Core personal consumption expenditures price index

Monthly

SOURCE: Bureau of Economic Analysis, personal consumption

expenditures via Haver Analytics.

3-month change

6 PART 1: RECENT ECONOMIC AND FINANCIAL DEVELOPMENTS

(gure3, left panel). Oil prices increased, on

net, in the rst half of this year (gure4).

Prices rose amid concerns about escalation

of the conict in the Middle East, additional

costs of rerouting some oil shipping away

from the Red Sea, and ongoing production

cuts by OPEC (Organization of the Petroleum

Exporting Countries) and its allies. Continuing

geopolitical tensions, including tensions

emanating from the conicts in the Middle

East and Ukraine, pose an upside risk to

energy prices.

Prices of agricultural commodities and

livestock edged up, on net, over the rst half

of this year after having come down markedly

in 2022 and 2023 from the highs reached at the

start of Russia’s war on Ukraine in early 2022

(gure5). As a result of these movements, the

12-month change in PCE food prices slowed

substantially from its peak of 12.2percent in

August2022 to just 1.2percent in May (as

shown in gure3, left panel).

Prices of both energy and food products are

of particular importance for lower-income

households, for which such necessities account

for a large share of expenditures. Reecting the

sharp increases seen in 2021 and 2022, these

price indexes are 25percent and 32percent

higher than in 2019, for food and energy,

respectively.

Food and

beverages

Services

ex. energy

and housing

Goods ex. food, beverages, and energy

Percent change from year earlier

20242023202220212020201920182017

Food and energy

Percent change from year earlier

Energy

–

Percent change from year earlier

20242023202220212020201920182017

Components of core prices

Monthly

Housing services

NOTE: The data are monthly.

OURCE

: Bureau of Economic Analysis via Haver Analytics.

3. Subcomponents of personal consumption expenditures price indexes

Brent spot price

100

120

140

Dollars per barrel

2019 2020 2021 2022 2023 2024

4. Spot and futures prices for crude oil

Weekly

24-month-ahead

futures contracts

OTE

: The data are weekly averages of daily data and extend through

June 28, 2024.

OURCE

: ICE Brent Futures via Bloomberg.

Agriculture

and livestock

100

120

140

160

180

200

Week ending January 4, 2019 = 100

2019 2020 2021 2022 2023 2024

5. Spot prices for commodities

Weekly

Industrial metals

OTE

: The data are weekly averages of daily data and extend through

June 28, 2024.

OURCE

: For industrial metals, S&P GSCI Industrial Metals Spot

Index; for agriculture and livestock, S&P GSCI Agriculture & Livestock

Spot Index; both via Haver Analytics.

MONETARY POLICY REPORT: JULY 2024 7

Percent change from year earlier

202420222020201820162014

6. Nonfuel import price index

Monthly

OURCE

: Bureau of Labor Statistics via Haver Analytics.

Core goods prices increased modestly

this year after having declined sharply in

the second half of 2023

In assessing the outlook for ination, it is

helpful to consider three separate components

of core prices: core goods, housing services,

and core nonhousing services. After posting

notable declines in the second half of last

year, core goods prices increased modestly,

on net, over the rst months of this year. This

development likely reects, in part, movements

in nonfuel import prices, which turned up in

recent months after having declined, on net,

over 2023 (gure6). Smoothing through these

monthly movements, prices for core goods over

the 12 months ending in May moved down

1.1percent, similar to their pre-pandemic rate

of decline, after having increased 2.5percent

over the previous 12-month period (gure3,

right panel). The progress on ination for

core goods reects improvements in supply–

demand imbalances. Indeed, the supply chain

issues and other capacity constraints that had

earlier boosted ination so much continued

to ease, though at a more gradual pace this

year than over the past two years, and supply–

demand conditions in goods markets appear

to be relatively balanced. For example, the

shares of respondents to the Quarterly Survey

of Plant Capacity Utilization citing insucient

supply of labor or materials as reasons

for producing below capacity, which had

increased considerably during the pandemic,

have continued to fall and are now near pre-

pandemic levels (gure7).

Housing services price ination

continued to slow gradually but remains

elevated . . .

The 12-month change in housing services

prices moved down from more than 8percent

in May2023 to 5.5percent in May of this year

but is still well above its pre-pandemic level (as

shown in gure3, right panel). Market rent

ination, which measures increases in rents for

new housing leases to new tenants, has fallen

markedly since late 2022 to near pre-pandemic

rates, and this slowdown points to continued

easing of housing services ination over the

Insucient supply

of labor

Percent

202420232022202120202019

7. Reasons for operating below full capacity

Quarterly

Insucient supply

of materials

OTE: The series are the share of rms selecting each reason for

operating below full capacity.

OURCE: U.S. Census Bureau: Quarterly Survey of Plant Capacity

Utilization.

8 PART 1: RECENT ECONOMIC AND FINANCIAL DEVELOPMENTS

year ahead. (The box “Housing Services

Ination and Market Rent Measures” provides

further details.)

. . . while core nonhousing services price

ination attened out so far this year

Finally, price ination for core nonhousing

services—a broad group that includes services

such as travel and dining, nancial services,

and car repair—slowed last year but attened

out, on net, in the rst ve months of this

year. Core nonhousing services prices rose

3.4percent in the 12months ending in May,

down from 4.7percent a year ago but little

changed since the end of last year (as shown

in gure3, right panel). The lack of further

progress this year is due in large part to price

increases in volatile categories—for example,

portfolio management services, which can

be inuenced by idiosyncratic factors, such

as swings in the stock market, more than

supply and demand conditions. Because

labor is a signicant input to these service

sectors, the ongoing deceleration in labor

costs—supported by softening labor demand

and improvements in labor supply—suggests

that disination will eventually resume for

thiscategory.

Measures of longer-term ination

expectations have been stable; shorter-

term expectations have been volatile but

are generally lower than a year earlier

The generally held view among economists

and policymakers is that ination expectations

inuence actual ination by aecting wage-

and price-setting decisions. Survey-based

measures of expected ination over a longer

horizon have generally been moving sideways

over the past year, within the range seen during

the decade before the pandemic, and they

appear broadly consistent with the FOMC’s

longer-run 2percent ination objective. This

development is seen for surveys of households,

such as the University of Michigan Surveys

of Consumers, and for surveys of professional

forecasters (gure8). For example, the median

forecaster in the Survey of Professional

SPF, next 10 years

Michigan survey, next 5 to 10 years

SPF, 6 to 10 years ahead

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

Percent

20242022202020182016201420122010

8. Measures of ination expectations

OTE

: The data for the Michigan survey are monthly and extend

through June 2024. The Survey of Professional Forecasters (SPF) data

are quarterly and extend through 2024:Q2.

OURCE

: University of Michigan Surveys of Consumers; Federal

Reserve Bank of Philadelphia, SPF.

Michigan survey, next 12 months

MONETARY POLICY REPORT: JULY 2024 9

(continued on next page)

units, they are typically smaller for continuing tenants

renewing their lease than they are for new tenants.

This lag implies that measures of rent growth for

new leases can help predict future changes in the

PCE price index for housing services. Over the past

few decades, private  rms have started publishing

various “market rent” measures that track the average

rent for new leases by new tenants.

For example, the

3. See Ben Houck (2022), “Housing Leases in the

U.S. Rental Market,” Spotlight on Statistics (Washington:

Bureau of Labor Statistics, September), https://www.bls.gov/

spotlight/2022/housing-leases-in-the-u-s-rental-market/

home.htm.

4. PCE prices for housing services differ from these market

rent measures for reasons beyond the fact that market rent

measures are limited to new leases to new tenants. In addition,

the discrepancy arises from the methodology used for index

construction (for example, the rent measures used in the PCE

price index sample a given residence only once every six

months), the representativeness of the sample, and the way in

which the measure controls for quality adjustments. Moreover,

market rent measures capture the “asking” prices posted by

landlords, while the rent measures used in the PCE price index

gauge the rent that tenants actually pay. Among these factors,

whether all leases are used (as opposed to only new leases)

appears to be the main contributor to this discrepancy. See

Brian Adams, Lara Loewenstein, Hugh Montag, and Randal

Verbrugge (2024), “Disentangling Rent Index Differences:

Data, Methods, and Scope,” American Economic Review:

Insights, vol. 6 (June), pp. 230–45.

The price index for housing services includes rents

explicitly paid by renters as well as implicit rents that

homeowners would have to pay if they were renting

their homes known as owners’ equivalent rent (OER).

This index is an important component of the price

index for personal consumption expenditures (PCE),

composing about 15.5percent of the total PCE price

index. Housing services prices started accelerating

in 2021, and, as  gure A illustrates, the contribution

of these prices to the 12-month change in the core

PCE price index increased notably, reaching a peak

of 1.4percentage points in 2023. In May2024, the

contribution of this component stood at 1.0percentage

point, down from its peak but still well above the

0.5percentage point that was typical before the

COVID-19 pandemic.

The PCE price index for housing services is derived

from two components of the consumer price index

(CPI): rent of primary residence and OER.

The rent of

primary residence index measures the average rent paid

by tenants. OER estimates the rent that homeowners

would pay if they were renting their homes without

furnishings or utilities and is derived from rental data

for units in the same neighborhood, with an adjustment

for structure type.

Because the price index for housing services

measures average rent for all tenants—both new

tenants and existing tenants—its changes are more

subdued and tend to lag changes in rent measures for

new leases, described later. Because rental agreements

typically last for 12months, most renters will not see an

immediate increase in their rent even if the rent for new

leases increases sharply. Additionally, the Bureau of

Labor Statistics, the agency responsible for computing

the CPI, reports that when rent increases occur for

1. The sum of the weights of these two components in the

total CPI is 34.4percent, considerably higher than their weight

in the total PCE price index.

2. The typical structure type varies signi cantly across

owner- and tenant-occupied units: Owner-occupied homes

are mostly single-family units, while renter-occupied homes

are roughly evenly divided between single-family and

multifamily units. Constructing the OER measure involves

reweighting the sample of rent quotes for a given area to

re ect the relative importance of owner-occupied housing in

that area. See slide13 of Robert Cage (2019), “Measurement

of Owner Occupied Housing in the U.S. Consumer Price

Index” (Washington: Bureau of Labor Statistics, November15),

https://www.bea.gov/system/files/2019-11/bea_tac_nov2019_

cage.pdf.

Housing Services In ation and Market Rent Measures

Percentage points

2024202220202018201620142012201020082006

A. Contributions to 12-month change in core

personal consumption expenditures price index

Monthly

SOURCE: Bureau of Economic Analysis via Haver Analytics;

Federal

Reserve Board sta calculations.

Core goods

Core services ex. housing

Housing services

10 PART 1: RECENT ECONOMIC AND FINANCIAL DEVELOPMENTS

Figure B illustrates that, historically, the year-over-

year change in market rents is an informative leading

indicator for the year-over-year change in PCE housing

multifamily apartment buildings. The Apartment List National

Rent Index, available beginning in 2017, measures changes in

median market rents across the entire rental market for both

single-family and multifamily units. To calculate unit-level rent

growth, all these measures, including the CoreLogic index,

use the repeat-rent methodology to control for differences

in property characteristics among the units listed for rent in

different periods.

CoreLogic Single-Family Rent Index measures changes

in average market rents for single-family homes.

Other measures include the Zillow, Apartment List,

and RealPage indexes, which vary in terms of the type

of unit they cover (single-family versus multifamily),

their methodologies, and the representativeness of the

national rental market.

5. The Zillow Observed Rent Index for single-family

residences, available beginning in 2015, focuses on changes

in asking rents for single-family units. The RealPage Rent

Index, available beginning in 1996, measures changes

in average market rents across professionally managed

Zillow single-family units

CoreLogic single-family detached units

RealPage multifamily units

Percent change from year earlier

2024202220202018201620142012201020082006

B. Housing rents

Monthly

NOTE: CoreLogic data extend through April 2024, Zillow data start in January 2016, and Apartment List data start in January 2018 and e

xtend

through

June 2024. Zillow, CoreLogic, Apartment List, and RealPage measure market-rate rents—that is, rents for a new lease by a new tenant. PCE i

personal consumption expenditures.

SOURCE: Bureau of Economic Analysis, PCE, via Haver Analytics; CoreLogic, Inc.; Zillow, Inc.; Apartment List, Inc. via Haver Analytics; RealPage

Inc.; Federal Reserve Board sta calculations.

PCE housing services

Apartment List single-family and multifamily units

(continued)

Housing Services In ation (continued)

MONETARY POLICY REPORT: JULY 2024 11

contracts typically last for a year and rents for existing

tenants take some time to catch up to the rents charged

to new tenants. In particular, the rise in measures of

market rents, including the CoreLogic Single-Family

Rent Index and the Zillow Observed Rent Index, from

the onset of the pandemic until now has been larger

than the corresponding increase in the PCE price

index for housing services, suggesting that the PCE

price measure has not yet fully caught up with the

current state of the rental market.

However, as long

as market rents continue to increase moderately, PCE

housing services in ation should gradually decline

and eventually return to its pre-pandemic pace as well.

However, signi cant uncertainty remains regarding the

timing of this decline and whether market rent in ation

will, in fact, remain moderate.

8. Between January2020 and April 2024, the CoreLogic

Single-Family Rent Index and the Zillow Observed Rent Index

have increased 32 percent and 38 percent, respectively, while

PCE prices for housing services have increased 23percent.

See Christopher D. Cotton (2024), “A Faster Convergence of

Shelter Prices and Market Rent: Implications for In ation,”

Current Policy Perspectives 2024-4 (Boston: Federal Reserve

Bank of Boston, June), https://www.bostonfed.org/-/media/

Documents/Workingpapers/PDF/2024/cpp20240617.pdf.

services prices, with the market rent measure typically

leading the PCE measure by one year.

This relationship

is particularly evident in the periods following the

Great Recession and the COVID-19 pandemic. For

example, PCE housing services in ation reached a peak

of 8.3percent in April2023, exactly one year after the

12-month change for the CoreLogic index reached its

peak of 13.8percent.

Since mid-2022, each of these measures of market

rents has decelerated and returned to a growth rate

similar to or below its average pre-pandemic pace.

While the PCE price index for housing services also

began decelerating in mid-2023, its current rate of

increase remains well above the average rate seen

in the years before the pandemic. As noted earlier,

changes in the PCE price index for housing services

tend to lag changes in market rents because rental

6. Several studies use market rent measures to predict

housing services in ation. See, for instance, Marijn A. Bolhuis,

Judd N.L. Cramer, and Lawrence H. Summers (2022), “The

Coming Rise in Residential In ation,” Review of Finance,

vol.26 (September), pp. 1051–72; and Kevin J. Lansing,

Luiz E. Oliveira, and Adam Hale Shapiro (2022), “Will Rising

Rents Push Up Future In ation?” FRBSF Economic Letter

2022-03 (San Francisco: Federal Reserve Bank of

SanFrancisco, February), https://www.frbsf.org/wp-content/

uploads/sites/4/el2022-03.pdf.

7. In addition, the Bureau of Labor Statistics has recently

started publishing a quarterly rent index for new tenants (the

New Tenant Rent Index). While the New Tenant Rent Index

is subject to revision with each release, the year-over-year

growth of this index declined from its peak of 12.9percent in

the second quarter of 2022 to 0.4percent in the  rst quarter

of 2024, the lowest reading since the second quarter of 2010.

See Bureau of Labor Statistics (n.d.), “New Tenant Rent Index,”

webpage, https://www.bls.gov/pir/new-tenant-rent.htm.

12 PART 1: RECENT ECONOMIC AND FINANCIAL DEVELOPMENTS

Forecasters, conducted by the Federal Reserve

Bank of Philadelphia, continued to expect

PCE price ination to average 2percent over

the ve years beginning ve years fromnow.

Ination expectations over a shorter horizon—

which tend to follow observed ination more

closely and tend to be more volatile—have

moved down, on net, since the middle of

2022 to near the range seen during the decade

before the pandemic. In recent months, the

median value for ination expectations over

the next year as measured in theMichigan

survey has been generally lower than readings

from a year earlier. Similarly, expected

ination for the next year as measured in the

Survey of Consumer Expectations, conducted

by the Federal Reserve Bank of New York, has

also declined, on average, from a year earlier.

Market-based measures of longer-term

ination compensation, which are based on

nancial instruments linked to ination such

as Treasury Ination-Protected Securities, are

also broadly in line with readings seen in the

years before the pandemic and consistent with

PCE ination returning to 2percent. These

measures have been little changed, on net,

since the beginning of the year (gure9).

The labor market remains strong

Payroll employment gains have been strong,

averaging 248,000 per month over the rst ve

months of the year. Job gains slowed from the

rst half to the second half of last year but

appear to have picked up, on net, so far this

year (gure10). Recent job gains have been

broad based, with over 60percent of industries

expanding their employment, on net, over the

three months ending in May. That said, gains

have been particularly strong in health care

and in state and local governments, where

employment remains below the levels implied

by pre-pandemic trends.

2. Administrative data from the Quarterly Census

of Employment and Wages (QCEW) suggest that job

growth last year was solid, but not as strong as reported

in the Current Employment Statistics (CES). The CES

5-year

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Percent

202420232022202120202019201820172016

9. Ination compensation implied by Treasury

Ination-Protected Securities

Daily

5-to-10-year

OTE:The data are at a business-day frequency and are estimated

from smoothed nominal and ination-indexed Treasury yield curves.

OURCE: Federal Reserve Bank of New York; Federal Reserve Board

sta calculations.

100

200

300

400

500

600

700

800

Thousands of jobs

2024202320222021

10. Nonfarm payroll employment

Monthly

OTE

: The data shown are a 3-month moving average of the change in

nonfarm payroll employment.

OURCE

: Bureau of Labor Statistics via Haver Analytics.

MONETARY POLICY REPORT: JULY 2024 13

The unemployment rate has edged up since the

middle of 2023 but was still at a historically

low level of 4.0percent in May. Through

May, the unemployment rate has remained

at or below 4percent for over two years

(gure11). Unemployment rates among most

age, educational attainment, sex, and ethnic

and racial groups remain near their respective

historical lows (gure12).

Labor demand has been gradually

cooling. . .

Demand for labor remained strong in the

rst half of 2024 but has continued to cool

gradually, on net, from its very elevated levels

of early 2022. Job openings, as measured in

the Job Openings and Labor Turnover Survey

(JOLTS), have continued to fall from their all-

time high recorded in March2022 but are

payroll data will be revised in early 2025, when the

Bureau of Labor Statistics benchmarks these data to

employment counts from the QCEW as part of its annual

benchmarking process.

Black or African American

Asian

Hispanic or Latino

Percent

2024202220202018201620142012201020082006

12. Unemployment rate, by race and ethnicity

Monthly

White

OTE

: Unemployment rate measures total unemployed as a percentage of the labor force. Persons whose ethnicity is identied as Hispanic or Latino

may

be of any race. Small sample sizes preclude reliable estimates for Native Americans and other groups for which monthly data are not reported b

the Bureau of Labor Statistics.

OURCE

: Bureau of Labor Statistics via Haver Analytics.

Percent

2024202220202018201620142012201020082006

11. Civilian unemployment rate

Monthly

OURCE

: Bureau of Labor Statistics via Haver Analytics.

14 PART 1: RECENT ECONOMIC AND FINANCIAL DEVELOPMENTS

still slightly above pre-pandemic levels.

alternative measure of job vacancies using job

postings data from the large online job board

Indeed also shows that while vacancies have

proceeded to move gradually lower through

the rst half of 2024, they have remained

above pre-pandemic levels.

Consistent with

the decline in job vacancies, the National

Federation of Independent Business (NFIB)

survey indicated that on net, in May, fewer

rms planned to add workers over the next

three months than was the case at the end of

2023; rms’ hiring plans reported in the NFIB

survey have been trending down since the

middle of 2021.

The cooling in labor demand has been

mostly due to reductions in rm hiring, as

indicators of layos, such as initial claims

for unemployment insurance and the rate of

layos and discharges in the JOLTS report,

have remained at historically low levels.

. . . and labor supply has increased

further . . .

Meanwhile, the supply of labor has continued

to increase on net. While labor force

participation has leveled o over the past year,

the U.S. population increased strongly because

of high levels of immigration.

The labor force participation rate (LFPR)—

which measures the share of people either

working or actively seeking work—increased

solidly from the beginning of 2021 through

the middle of 2023 but appears to have

3. Some analysts have noted that the vacancy-posting

behavior of rms may have changed since 2019 in ways

that lift the number of vacancies. For example, multi-

establishment rms may be posting vacancies for a

single job opening at several or all of its establishments

if the new job allows workers to work remotely from

any establishment. These multiple job postings may

result in overcounting of job vacancies in establishment-

level measures, such as those from JOLTS and Indeed.

Alternatively, after having experienced an exceptionally

strong labor market in 2022, rms may now be more

willing to post vacancies for positions that they are

unlikely to ll immediately.

4. Indeed job postings data are available on the

company’s Hiring Lab portal at https://data.indeed.com/

#/postings.

MONETARY POLICY REPORT: JULY 2024 15

Percent

2024202220202018201620142012201020082006

13. Labor force participation rate

Monthly

NOTE:Data are monthly, and values before January 2024 are

estimated by Federal Reserve Board sta in order to eliminate

discontinuities in the published history.

OURCE

: Bureau of Labor Statistics via Haver Analytics.

attened out at a relatively high level since

then. The LFPR was 62.5percent in May,

a touch below its average level over the past

12 months (gure13). Notably, the post-

pandemic recovery in the LFPR has diered

widely across demographic groups, with the

participation rate for women aged 25 to 54

reaching all-time highs in recent months and

the participation rate for individuals older

than 55 exhibiting no signs of recovery. (The

box “Employment and Earnings across

Demographic Groups” provides further

details.)

Labor supply has also been boosted in recent

years by relatively strong population growth

due to a notable expansion in immigration.

Though ocial estimates by the Census

Bureau show a robust increase in population

growth in 2022 and 2023, recent estimates

by the Congressional Budget Oce indicate

that actual population growth may have been

considerably higher. The most recent data

suggest that immigration is somewhat slower

than the strong rates seen late last year.

. . . resulting in a normalization of labor

market conditions

With cooling labor demand and rising labor

supply, the labor market became gradually less

tight over the rst half of this year, although

it nevertheless remains strong. The balance

between demand and supply in the labor

market appears similar to that during the

period immediately before the pandemic.

5. A recent report from the Congressional Budget

Oce (CBO) estimates that immigration in 2022 and

2023 was considerably higher than in the Census Bureau’s

estimates. See Congressional Budget Oce (2024), The

Demographic Outlook: 2024 to 2054 (Washington: CBO,

January), https://www.cbo.gov/publication/59697. Recent

studies have put more weight on the CBO estimates, in

part because the Census Bureau is using lagged estimates

of immigration from the American Community Survey,

while the CBO is using more recent, high-frequency data.

See Wendy Edelberg and Tara Watson (2024), “New

Immigration Estimates Help Make Sense of the Pace of

Employment,” Hamilton Project (Washington: Brookings

Institution, March), https://www.brookings.edu/

wp-content/uploads/2024/03/20240307_Immigration

Employment_Paper.pdf.

16 PART 1: RECENT ECONOMIC AND FINANCIAL DEVELOPMENTS

Among prime-age people (aged 25 to 54), the

employment-to-population (EPOP) ratio for Black or

African American workers remained near its historical

peak in the  rst half of 2024, and the gap in the EPOP

ratio between prime-age Black and white workers

fell to its lowest point in almost 50years. Similarly,

prime-age Hispanic or Latino workers’ EPOP ratio

has increased notably over the  rst part of 2024 and

is now more than 1percentage point above its 2019

level ( gure A, top-left panel). That improvement has

further reduced the EPOP ratio gap between Hispanic

or Latino workers and white workers from already

At the aggregate level, solid labor demand and

improved labor supply, together with ongoing gains

in productivity and falling in ation, have resulted in

high rates of employment and rising real wages over

the past year. This solid labor market performance has

been broadly shared and has been especially bene cial

for historically disadvantaged groups of workers.

As a result, many of the long-standing disparities in

employment and wages by sex, race, ethnicity, and

education have narrowed, and some gaps reached

historical lows in 2023 and the  rst half of 2024.

However, despite this narrowing, signi cant disparities

in absolute levels across groups remain.

Employment and Earnings across Demographic Groups

(continued)

Black or African American

Men, some college or more

Men, high school or lessAsian

Hispanic or Latino

Percentage points

202420232022202120202019

Race and ethnicity

Monthly

White

Percentage points

202420232022202120202019

Sex and educational attainment

Monthly

Women, some college or more

Women, high school or less

A. Prime-age employment-to-population ratios compared with the 2019 average ratio, by group

People without a disability

Percentage points

202420232022202120202019

Disability

Monthly

OTE

: Prime age is 25 to 54. All series are seasonally adjusted by the Federal Reserve Board sta.

OURCE

: Bureau of Labor Statistics; U.S. Census Bureau, Current Population Survey; Federal Reserve Board sta calculations.

People with a disability

MONETARY POLICY REPORT: JULY 2024 17

the average employment rate for this group.

For

persons without a disability, the EPOP ratio is little

changed from its 2019 level.

Although most groups have shown robust

employment gains over the past few years, the

EPOP ratio for people aged 55 or older remains

approximately 2percentage points below its 2019

level and has changed little since late 2021 ( gure B).

This shortfall is attributable to a persistent increase in

the rate of retirement among this group. Most of the

increase in retirement relative to 2019 is due to the

continued aging of the baby-boom generation, a trend

that was expected to have occurred even without the

pandemic.

However, retirements have also been

4. The increase in the number of persons with a disability

may be linked to cases of long COVID, which, while

debilitating, might not limit work as much as other types

of disabilities. As a result, an in ux of relatively higher-

employment individuals into the disabled category could have

raised employment rates for this group even if no individual’s

employment changed.

5. For example, as baby boomers have continued to age,

the median age of the population aged 55 or older increased

from 66 in 2019 to 67 in the  rst half of 2024, and the median

age of that group is expected to continue increasing into

the future. This shift in the composition of the 55-or-older

population has naturally lowered the observed EPOP ratio for

this group nearly 0.5percentage point per year, as EPOP ratios

are lower at older ages.

historically low levels. Although the EPOP ratio for

prime-age Asian workers has moved somewhat lower

over the past year, it remains historically high and

above its 2019 level.

The EPOP ratio for prime-age women has continued

to increase steadily, reaching another record high in the

 rst few months of 2024, whereas the EPOP ratio for

prime-age men has been mostly  at over the past year,

near its level in the year before the pandemic ( gureA,

top-right panel). As a result, the EPOP ratio gap

between prime-age men and women fell to a record

low this year. The increase in the female EPOP ratio

relative to the pre-pandemic period is (almost) entirely

attributable to rising labor force participation, which

had also been increasing briskly before the pandemic,

consistent with a growing share of women with a

college degree.

Other factors, including strong labor

market conditions and greater availability of remote-

work options, may have also contributed to rising

prime-age female labor force participation.

Among prime-age persons with a disability, the

EPOP ratio has surged well above its 2019 level during

the past few years ( gure A, bottom panel). Some of

this increase is likely due to the unique labor market

circumstances of the past few years. With tight labor

market conditions, employers may have been relatively

more likely to hire persons with a disability than in

other times. Additionally, the rise of remote work may

have enabled persons with a disability to work without

the challenges of on-site work. However, some of the

increase could stem from a change in the composition

of this group, as the number of persons with a disability

rose following the pandemic, which may have raised

1. As monthly series have greater sampling variability

for smaller groups, we do not plot EPOP ratio estimates for

American Indians or Alaska Natives.

2. For a discussion of the contribution of educational

attainment to prime-age female labor force participation

before the pandemic, see Didem Tüzemen and Thao Tran

(2019), “The Uneven Recovery in Prime-Age Labor Force

Participation,” Federal Reserve Bank of Kansas City,Economic

Review, vol. 104 (Third Quarter), pp. 21–41, https://www.

kansascityfed.org/Economic%20Review/documents/652/2019-

The%20Uneven%20Recovery%20in%20Prime-Age%20

Labor%20Force%20Participation.pdf.

3. For a discussion on access to remote work and

participation rates, see Maria D. Tito (2024), “Does the

Ability to Work Remotely Alter Labor Force Attachment?

An Analysis of Female Labor Force Participation,” FEDS

Notes (Washington: Board of Governors of the Federal

Reserve System, January19), https://doi.org/10.17016/2380-

7172.3433.

(continued on next page)

Ages 16 to 24

Ages 55+

Percentage points

202420232022202120202019

B. Employment-to-population ratios relative to 2019

average, by age

Monthly

Ages 25 to 54

NOTE:Data before January 2023 are estimated by Federal R

eserve

Board sta in order to eliminate discontinuities in the published history.

OURCE:Bureau of Labor Statistics; U.S. Census Bureau, Curren

Population Survey; Federal Reserve Board sta calculations.

18 PART 1: RECENT ECONOMIC AND FINANCIAL DEVELOPMENTS

C. Median real wage growth, by group

4th quartile

White

1st quartile3rd quartile

Percent

202420232022202120202019

Wage quartiles

Monthly

2nd quartile

Percent

202420232022202120202019

Race

Monthly

Nonwhite

Men

High school or less

Bachelor’s degree or more

Percent

202420232022202120202019

Sex

Monthly

OTE

: The data extend through March 2024. Series show 12-month moving averages of the median percent change in the hourly wage of individuals

observed 12 months apart, deated by the 12-month moving average of the 12-month percent change in the personal consumption expenditures price

index. In the top-left panel, workers are assigned to wage quartiles based on the average of their wage reports in both Current Population Survey

outgoing rotation group interviews; workers in the lowest 25 percent of the average wage distribution are assigned to the 1st quartile, and those in the

top 25 percent are assigned to the 4th quartile.

OURCE

: Federal Reserve Bank of Atlanta, Wage Growth Tracker; Bureau of Labor Statistics; U.S. Census Bureau, Current Population Survey.

Women

Percent

202420232022202120202019

Educational attainment

Monthly

Associate’s degree

by the Federal Reserve Bank of Atlanta’s Wage Growth

Tracker and de ated by the personal consumption

expenditures price index—was consistently stronger for

workers in lower wage quartiles compared with the top

quartiles during the pandemic and early recovery, but

now all quartiles are experiencing similar growth.

Strong wage growth across the income distribution

is re ected in the experiences of different demographic

groups. Wage growth for nonwhite workers has been a

bit stronger than that for white workers for much of the

past year ( gure C, top-right panel). Wages for women

and men have grown essentially in tandem over the

past year ( gure C, bottom-left panel).

Real wage

growth for workers with a high school diploma or less

remains strong and has been rising a bit faster than for

workers with more education, on average, over the past

few years ( gure C, bottom-right panel).

7. To reduce noise due to sampling variation, which can

be pronounced when considering disaggregated groups’

wage changes, the series shown in  gure C are the 12-month

moving averages of the groups’ median 12-month real wage

changes. Thus, by construction, these series lag the actual real

wage changes. Wage data extend through March2024 only to

avoid complications stemming from changes in the underlying

data source.

8. The measure of real wage growth shown in the  gure

uses the same price index for all groups, but in ation

experiences can differ across demographic groups because

of differences in what they purchase or where they shop.

See Jacob Orchard (2021), “Cyclical Demand Shifts and

Cost of Living Inequality,” working paper, February (revised

September2022).

elevated above the level expected from aging alone,

mostly for individuals aged 65 or older.

While employment disparities across many

demographic groups are now within historically narrow

ranges, substantial gender, racial, and ethnic gaps

remain, underscoring long-standing structural factors.

Currently, prime-age women are employed at a rate

10 percentage points less than men, while prime-age

Black and Hispanic workers are employed at a rate

3to4percentage points less than white workers.

Similar to employment, a continued strong labor

market has supported strong nominal wage growth, and

as in ation has come down, that strong nominal wage

growth has translated into higher real wage growth.

Real wage growth has been comparatively robust for

historically disadvantaged groups. As shown in the top-

left panel of  gure C, real wage growth—as measured

6. For an analysis on the increase in retirements following

the pandemic, see Joshua Montes, Christopher Smith, and

Juliana Dajon (2022), “ ‘The Great Retirement Boom’: The

Pandemic-Era Surge in Retirements and Implications for Future

Labor Force Participation,” Finance and Economics Discussion

Series 2022-081 (Washington: Board of Governors of the

Federal Reserve System, November), https://doi.org/10.17016/

FEDS.2022.081.

(continued)

Employment and Earnings (continued)

MONETARY POLICY REPORT: JULY 2024 19

C. Median real wage growth, by group

4th quartile

White

1st quartile3rd quartile

Percent

202420232022202120202019

Wage quartiles

Monthly

2nd quartile

Percent

202420232022202120202019

Race

Monthly

Nonwhite

Men

High school or less

Bachelor’s degree or more

Percent

202420232022202120202019

Sex

Monthly

OTE

: The data extend through March 2024. Series show 12-month moving averages of the median percent change in the hourly wage of individual

observed

12 months apart, deated by the 12-month moving average of the 12-month percent change in the personal consumption expenditures p

rice

index.

In the top-left panel, workers are assigned to wage quartiles based on the average of their wage reports in both Current Population Surve

outgoing

rotation group interviews; workers in the lowest 25 percent of the average wage distribution are assigned to the 1st quartile, and those in

the

top 25 percent are assigned to the 4th quartile.

OURCE

: Federal Reserve Bank of Atlanta, Wage Growth Tracker; Bureau of Labor Statistics; U.S. Census Bureau, Current Population Survey.

Women

Percent

202420232022202120202019

Educational attainment

Monthly

Associate’s degree

20 PART 1: RECENT ECONOMIC AND FINANCIAL DEVELOPMENTS

A variety of labor market indicators support

this assessment. The ratio of job openings

to unemployment has fallen notably from its

peak of about 2.0 in spring 2022 to 1.2 in May,

the same as its average in 2019. Similarly, the

gap between the number of total available

jobs (measured by employed workers plus job

openings) and the number of available workers

(measured by the size of the labor force) has

also moved down markedly from its peak of

6.1million in spring 2022 to 1.4million in

May and is only a bit above its 2019 average of

1.2million (gure14). The unemployment rate

has continued to edge up this year and reached

4.0percent in May, modestly higher than in

2019. In addition, the percentage of workers

quitting their jobs each month, an indicator

of the availability of attractive job prospects,

has continued to move down this year and,

though still elevated, is now modestly below

its pre-pandemic level. Similarly, the share

of respondents to the Conference Board

Consumer Condence Survey reporting that

jobs are plentiful has continued to move down

and is somewhat lower than its level in 2019.

Furthermore, the NFIB survey indicates that

rms’ perceptions of labor market tightness

have come down from their recent peaks and

returned to their pre-pandemic range. Finally,

business contacts surveyed for the Federal

Reserve’s May2024 Beige Book reported signs

of a cooling labor market—including easing

in hiring plans, better labor availability, and

modest wage growth—and, similar to 2019,

cited some diculty nding workers in selected

industries or areas.

Wage growth remains elevated but

hasslowed

Consistent with the easing in labor market

tightness, nominal wage growth continued to

slow so far this year, though it remains above

its pre-pandemic pace and likely too high,

given productivity trends, to be consistent with

2percent ination over time (gure15). Total

hourly compensation, as measured by the

6. See the May2024 Beige Book, available on the

Board’s website at https://www.federalreserve.gov/

monetarypolicy/beigebook202405.htm.

Available workers

135

140

145

150

155

160

165

170

175

Millions

2024202220202018201620142012201020082006

14. Available jobs versus available workers

Monthly

OTE

: Available jobs are employment plus job openings as of the end

of the previous month. Available workers are the labor force. Data for

employment and labor force before January 2024 are estimated by

Federal Reserve Board sta in order to eliminate discontinuities in the

published history.

OURCE

: Bureau of Labor Statistics via Haver Analytics; U.S. Census

Bureau; Federal Reserve Board sta calculations.

Available jobs

Average hourly earnings, private sector

Employment cost index, private sector

Percent change from year earlier

202420232022202120202019201820172016

15. Measures of change in hourly compensation

OTE

: For the private-sector employment cost index, change is over

Atlanta Fed’s Wage Growth Tracker

the 12 months ending in the last month of each quarter; for private-

sector average hourly earnings, the data are 12-month percent changes;

for the Atlanta Fed’s Wage Growth Tracker, the data are shown as a

3-month moving average of the 12-month percent change and

extend

through March 2024.

S: Bureau of Labor Statistics; Federal Reserve Bank of Atlanta,

Wage Growth Tracker; all via Haver Analytics.

MONETARY POLICY REPORT: JULY 2024 21

employment cost index, increased 4.1percent

over the 12months ending in March, a

noticeable slowing from the peak increase

of 5.5percent in mid-2022. Other aggregate

measures of labor compensation, such as

average hourly earnings (a less comprehensive

measure of compensation) and the Federal

Reserve Bank of Atlanta’s Wage Growth

Tracker (which reports the median 12-month

wage growth of individuals responding to

the Current Population Survey), have also

continued to slow from their recent peaks in

2022 but remain well above their pre-pandemic

growth rates. Wage growth has not normalized

to the same extent as the measures of labor

market tightness cited earlier, suggesting that

there is some persistence in the adjustment

process to past shocks. With PCE prices

having risen 2.6percent over the 12 months

through May, these nominal wage measures

suggest that most workers saw increases in

the purchasing power of their wages over the

pastyear.

Labor productivity has increased at a

moderate pace with signicant volatility

The extent to which nominal wage gains raise

rms’ costs and act as a source of ination

pressure depends importantly on the pace of

productivity growth. Labor productivity in the

business sector—the ratio of output to hours

worked—has been extremely volatile since the

pandemic began. It increased sharply in 2020,

moved roughly sideways in 2021, declined

strongly in 2022, and then rebounded solidly

in 2023 (gure16). Averaging through these

large swings, business-sector productivity has

increased at a moderate annual average rate of

1½percent since the onset of the pandemic, in

line with the average rate of growth observed

during the previous business cycle (from the

fourth quarter of 2007 to the fourth quarter

of2019).

The pace of future productivity growth

is highly uncertain. It is possible that

productivity growth could remain at around

its current moderate pace. However, it is

also possible that the rapid adoption of new

technologies like articial intelligence (AI)

100

102

104

106

108

110

112

2017 average = 100

202420222020201820162014

16. U.S. labor productivity

Quarterly

NOTE:The data are output per hour in the business sector.

OURCE

: Bureau of Labor Statistics via Haver Analytics.

22 PART 1: RECENT ECONOMIC AND FINANCIAL DEVELOPMENTS

and robotics, as well as the high rate of new

business formation brought about by the

pandemic, could boost productivity growth

above that pace in coming years.

Growth in gross domestic product

moderated in the rst quarter, but private

domestic demand remained solid

After expanding at a robust pace in the second

half of last year despite restrictive nancial

conditions, real gross domestic product (GDP)

decelerated to a moderate annual growth

rate of 1.4percent in the rst quarter of this

year (gure17). The step-down was due in

large part to sizable drags from net exports

and inventory investment; these categories

of expenditures tend to be volatile even in

normal times and have been even more so since

the pandemic. Growth in private domestic

nal purchases—that is, consumer spending,

business xed investment, and residential

investment—also moderated in the rst quarter

but remained solid.

Among these components

of GDP, consumer spending rose strongly in

the second half of last year and decelerated in

the rst quarter as goods spending declined

while services spending continued to rise

solidly. Business xed investment increased at

a moderate pace in the rst quarter as a result

of strength in nontransportation equipment

spending and intellectual property investment,

while nonresidential structures slowed after

surging in 2023. Residential investment grew

rapidly in the rst quarter, reecting, for the

most part, increases in existing home sales and

construction of single-family homes.

7. Real gross domestic income (GDI) has been

notably weaker than GDP in recent years; both series

measure the same economic concept, and any dierence

between the two gures reects measurement error in

one or both series. GDI is reported to have increased

at a pace only slightly slower than GDP in the rst

quarter but had risen notably less than GDP over the

previous three years. As a result, productivity calculated

from the income side of the national accounts would be

considerably weaker than the published gures over the

past three years.

Percent, annual rate

202420232022202120202019201820172016

17. Change in real gross domestic product and gross

domestic income

NOTE: The key identies bars in order from left to right.

OURCE

: Bureau of Economic Analysis via Haver Analytics.

Gross domestic product

Gross domestic income

MONETARY POLICY REPORT: JULY 2024 23

After having returned to pre-pandemic levels

in late 2021, manufacturing output has been

little changed, on net, since then. While motor

vehicle production has continued to rebound

from earlier disruptions, factory production

outside of motor vehicles has drifted down

somewhat. The diusion indexes of new orders

from various national and regional surveys of

manufacturers remained mostly soft in June,

suggesting continued modest weakness in

coming months.

Consumer spending growth has been

resilient but eased this year

Consumer spending adjusted for ination grew

at a solid rate of 2.7percent in 2023 but slowed

in the rst quarter to a moderate 1.5 percent

pace (gure18). The resilience in consumer

spending last year in the face of high interest

rates likely reected strong job gains and rising

real wages. Indeed, real disposable personal

income increased at a robust 3.8percent rate

in 2023. In addition, last year’s spending was

bolstered by households drawing down their

liquid assets, such as checking accounts, and

relying more on credit.

More recently, the easing in consumer

spending growth in the rst quarter was

accompanied by a softening in some

household spending fundamentals along with

somewhat restrictive nancial conditions.

Disposable personal income growth moderated

in the rst quarter after a robust pace last

year. While household nances appear

healthy in the aggregate, credit card and

auto loan delinquencies continued to rise in

the rst quarter, suggesting that a growing

share of households are experiencing some

nancialstress.

Despite the recent easing in consumer

spending growth, households continue to

spend more of their income than is typical.

The saving rate—the dierence between

current income and spending, as a share of

income—was 3.8percent in the rst quarter

and has been well below its pre-pandemic

average of over 6percent for nine consecutive

Percent, annual rate

202420232022202120202019201820172016

18. Change in real personal consumption expenditures

OURCE

: Bureau of Economic Analysis via Haver Analytics.

24 PART 1: RECENT ECONOMIC AND FINANCIAL DEVELOPMENTS

quarters (gure19). This low saving rate likely

reects in large part the eects of high wealth

and still-strong balance sheets of higher-

incomehouseholds.

Consumer spending since the pandemic has

been more robust than measures of consumer

sentiment would suggest. The indexes of

consumer sentiment published by both the

University of Michigan and the Conference

Board remain well below their pre-pandemic

levels. Although the Michigan survey index

has improved markedly since spring 2022, it

is further below its pre-pandemic level than

the Conference Board index, which puts more

weight on labor market conditions (gure20).

Consumer nancing conditions remain

somewhat restrictive

Consumer nancing conditions have been

somewhat restrictive, reecting high borrowing

costs and tight bank lending standards. Interest

rates for consumer credit products such as

new credit cards and auto loans edged down

in recent months but remained elevated. In the

April Senior Loan Ocer Opinion Survey on

Bank Lending Practices (SLOOS), conducted

by the Federal Reserve Board, banks reported

continued tightening of lending standards

for consumer loans in the rst quarter, likely

reecting increases in delinquency rates.

Indeed, credit card and auto loan delinquency

rates—measured as the fraction of balances

that are at least 30 days past due—have

increased from their 2021 lows and are above

the levels observed just before the pandemic.

Even so, nancing has been generally available

to support consumer spending. Consumer

credit expanded moderately, on net, during

the rst four months of the year, driven by

still-solid growth in credit card balances and

modest growth in auto loans and student loans

(gure21).

Michigan survey

100

110

February 1966 = 100

105

125

145

2024202220202018201620142012201020082006

1985 average = 100

20. Indexes of consumer sentiment

Conference Board

OTE

: The data are monthly and extend through June 2024.

OURCE

: University of Michigan Surveys of Consumers; Conference

Board.

Billions of dollars, monthly rate

2024202220202018201620142012

21. Consumer credit ows

Apr.

NOTE: Credit card balances were little changed in 2011 and 2012.

OURCE: Federal Reserve Board, Statistical Release G.19, “

Consumer

Credit.”

Student loans

Auto loans

Credit cards

PercentMonthly

202420222020201820162014

19. Personal saving rate

OURCE

: Bureau of Economic Analysis via Haver Analytics.

MONETARY POLICY REPORT: JULY 2024 25

Residential investment turned around and

has increased since mid-2023

After rising sharply between early 2022 and

late 2023, mortgage interest rates have fallen

back some since last fall but, at around

7percent, remain well above their pre-

pandemic peak in 2018 (gure22). Following

the sharp rise in mortgage rates, residential

investment declined steeply in 2022 and fell

further in the rst half of last year but has

picked up since mid-2023. Solid income

growth and the declines in interest rates late

last year have provided support for residential

investment demand so far this year. Indeed,

residential investment rose sharply in the

rstquarter.

Sales of existing homes have moved up a

touch this year but remain at very low levels.

Relatively high mortgage interest rates and

house prices have reduced aordability and

depressed homebuying sentiment. Moreover,

though new listings of existing homes have

increased modestly this year, the supply of

existing homes for sale remains quite low,

as many homeowners are reportedly “rate

locked”—unwilling to move and take out

a new mortgage while mortgage rates are

relatively high. Many households purchased

homes or renanced when xed mortgage rates

were at historically low levels in 2020 and 2021,

and, as a result, the majority of outstanding

mortgages have interest rates below 4percent

(gure23).

In contrast to existing home sales, sales of

new homes declined when mortgage rates

rst increased, but they bounced back fairly

quickly and have remained around their pre-

pandemic levels. The new home market has

likely been supported by demand from buyers

who are unable to nd homes in the existing

home market and by homebuilder interest rate

incentives (gure24).

Percent

20242022202020182016

22. Mortgage interest rates

Weekly

NOTE: The data are contract rates on 30-year, xed-rate conventional

home mortgage commitments and extend through June 27, 2024.

OURCE: Freddie Mac Primary Mortgage Market Survey via Haver

Analytics.

Below 5 percent

Below 6 percent

100

Percent

20242022202020182016201420122010

23. Distribution of interest rates on outstanding mortgages

Monthly

Below 4 percent

OTE

: The sample only includes outstanding mortgages current on

their payments.

OURCE

: ICE, McDash®.

Existing home sales

3.0

3.5

4.0

4.5

5.0

5.5

6.0

Millions, annual rate

1.0

1.2

1.4

2024202220202018201620142012201020082006

24. New and existing home sales

Millions, annual rate

New home sales

OTE:The data are monthly. New and existing home sales include

only single-family sales.

OURCE: For new home sales, U.S. Census Bureau; for existing home

sales, National Association of Realtors; all via Haver Analytics.

26 PART 1: RECENT ECONOMIC AND FINANCIAL DEVELOPMENTS

The relative strength in new home demand

encouraged builders to increase housing

construction last year, boosting starts and

permits for single-family housing (gure25).

In recent months, though, single-family

housing starts and permits have drifted

back down, likely because of high builder

inventories and some easing in new home

demand. Reecting these demand and supply

factors, house price growth slowed rapidly in

2022 from a historically high pace and has

remained moderate since then (gure26).

The balance of demand and supply in the

multifamily housing market is fundamentally

dierent from that in the single-family housing

market, as it is dominated by rental units.

Sharp increases in rents in 2021 and 2022

encouraged a dramatic increase in multifamily

starts in those years, creating large amounts

of new supply. With many units still under

construction and weak rental growth since

2022, multifamily starts have been declining

since last year (as shown in gure25).

Capital spending increased at a

moderatepace

Business investment spending rose moderately

in 2023 and in the rst quarter of this

year, supported by strong sales growth and

improvements in business sentiment and

prot expectations—and despite high interest

rates (gure27). However, the sources of

strength in business investment shifted

recently. Investment in structures—which

had surged in early 2023 because of a boom

in manufacturing construction, especially

for factories that produce semiconductors or

electric vehicle batteries—decelerated in the

second half of 2023 and has slowed further so

far this year, although the level of structures

investment remains much higher than in

8. For additional discussion, see the box “Recent

Housing Market Developments” in Board of Governors

of the Federal Reserve System (2024), Monetary Policy

Report (Washington: Board of Governors, March),

pp.19–21, https://www.federalreserve.gov/publications/

files/20240301_mprfullreport.pdf.

Single-family permits

Multifamily starts

1.0

1.2

1.4

Millions of units, annual rate

202420222020201820162014201220102008

25. Private housing starts and permits

Monthly

OURCE

: U.S. Census Bureau via Haver Analytics.

Single-family starts

Zillow

CoreLogic

Percent change from year earlier

20242019201420092004199919941989

26. Growth rate in house prices

Monthly

NOTE: S&P/Case-Shiller data extend through April 2024.

OURCE: CoreLogic, Inc., Home Price Index; Zillow, Inc., Real Estat

Data; S&P/Case-Shiller U.S. National Home Price Index. The

S&P/Case-Shiller index is a product of S&P Dow Jones Indices LLC

and/or its aliates. (For Dow Jones Indices licensing information, see

the note on the Contents page.)

S&P/Case-Shiller

Percent, annual rate

20242022202020182016

27. Change in real business xed investment

NOTE: Business xed investment is known as “private nonresidential

xed investment” in the national income and product accounts. The

key

identies bars in order from left to right.

SOURCE: Bureau of Economic Analysis via Haver Analytics.

Structures

Equipment and intangible capital

MONETARY POLICY REPORT: JULY 2024 27

previous years. Starting late last year, growth

in business investment in nontransportation

equipment and intellectual property stepped

up, supported by gains in high-technology

equipment spending and software investment.

Business nancing conditions are

somewhat restrictive, but credit remains

generally available

Although businesses face somewhat restrictive

nancing conditions, as interest rates are still

elevated, credit remains generally available

to most nonnancial corporations. Banks

continued to tighten lending standards for

all business loan types over the rst quarter

of this year, and even though business loan

growth at banks increased in the rst ve

months of the year, it stayed tepid. In contrast,

issuance of corporate bonds remained strong

so far this year, although well below the

levels that prevailed at the beginning of the

tightening cycle.

For small businesses, which are more reliant

on bank nancing than large businesses, credit

conditions remained tight but stable over the

rst half of this year. Surveys indicate that

credit supply for small businesses tightened

modestly, while interest rates on loans to

small businesses were little changed, staying

near the top of the range observed since

2008. In addition, while loan default rates

have continued to increase, delinquency rates

stabilized in the rst part of the year at levels

that slightly exceeded their pre-pandemic

rates. Finally, loan originations have remained

stable over the past year and above the range

observed before the pandemic, suggesting

that credit continues to be available for small

businesses.

Net exports were a drag on GDP growth

On balance, net exports subtracted

0.7percentage point from U.S. GDP growth

in the rst quarter of this year after having

contributed about one-tenth to annualized

GDP growth in the second half of last year.

After moderate growth in the second half of

28 PART 1: RECENT ECONOMIC AND FINANCIAL DEVELOPMENTS

last year, real imports of goods and services

have stepped up further this year despite some

deceleration in U.S. GDP growth. By contrast,

real export growth has slowed signicantly,

as some categories with especially strong

growth in the second half of last year declined

this year, particularly industrial supplies and

materials (gure28). The current account

decit as a share of GDP widened slightly in

the rst quarter of 2024 and remains wider

than before the pandemic.

Federal scal policy actions were roughly

neutral for GDP growth last year and so

far this year

Federal purchases grew modestly in 2023 and

moved sideways in the rst quarter of the

year. The overall contribution of discretionary

federal scal policy to real GDP growth

appears to have been roughly neutral last year

and in the rst quarter of this year, as the

unwinding of pandemic-related policies oset

the boost to consumption and investment from

policies enacted after the pandemic.

The budget decit and federal debt

remain elevated

After surging to about 15percent of GDP in

scal year 2020, the budget decit declined

through scal 2022 as the imprint of the

pandemic faded (gure29). The budget decit

moved up to 6.3percent of GDP in scal

2023 as net interest outlays increased, while

tax receipts declined from their elevated level

in 2022. Debt service costs have moved up

sharply in recent years—as a result of higher

interest rates and a higher level of debt—and

are at their highest level in over two decades.

The primary decit—the dierence between

noninterest outlays and receipts—has moved

down, on net, since scal 2020 and moved

sideways in 2022 to 2023, as the eects of a

decline in noninterest outlays as a share of

GDP were oset by a decline in receipts as a

share ofGDP.

As a result of the unprecedented scal support

enacted early in the pandemic, federal debt held

by the public jumped roughly 20percentage

Expenditures

Percent of nominal GDP

2024202120182015201220092006200320001997

Annual

29. Federal receipts and expenditures

Receipts

OTE: Through 2023, the receipts and expenditures data are on a

unied-budget basis and are for scal years (October to September);

gross domestic product (GDP) is for the 4 quarters ending in Q3. For

2024, receipts and expenditures are for the 12 months ending in May;

GDP is the average of 2023:Q4 and 2024:Q1.

OURCE: Department of the Treasury, Financial Management Service;

Oce of Management and Budget and Bureau of Economic Analysis via

Haver Analytics.

Percent, annual rate

202420232022202120202019201820172016

28. Change in real imports and exports of goods

and services

OURCE

: Bureau of Economic Analysis via Haver Analytics.

Imports

Exports

MONETARY POLICY REPORT: JULY 2024 29

points to close to 100percent of GDP in

2020—the highest debt-to-GDP ratio since

1947 (gure30). The debt-to-GDP ratio has

moved roughly sideways since then, as upward

pressure from large primary decits has been

oset by strong nominal GDPgrowth.

Most state and local government budget

positions remained strong . . .

Federal policymakers provided a historically

high level of scal support to state and local

governments during the pandemic; this aid,

together with robust state tax collections

in 2021 and 2022, left the sector in a strong

budget position overall (gure31). Although

state tax revenues weakened in 2023 and early

this year—mainly reecting a normalization

of receipts from elevated levels in 2022, as

well as the eects of recently enacted tax

cuts in some states—taxes as a percentage

of GDP remained near recent historical

norms. Moreover, states’ total balances—that

is, including rainy day fund balances and

previous-year surplus funds—continued to

be near all-time highs. Nevertheless, budget

situations varied widely across states, with

some states—particularly those that depend

heavily on capital gains tax collections—facing

tighter budget conditions. At the local level,

overall property tax receipts rose briskly in

2023 and continued to increase at an elevated

rate in the rst quarter.

. . . contributing to brisk growth in

employment and construction spending

Employment in state and local governments

rose strongly in 2023 and early this year and

has now recovered from the drop during the

pandemic, though it is still below the level

implied by the pre-pandemic trend (gure32).

This surge in state and local employment

reects the waning of pandemic-related

headwinds such as a big increase in retirements

early in the pandemic and slower wage growth

relative to that in the private sector. Similarly,

real construction outlays grew at a historically

high rate last year, reecting easing bottlenecks

and support from federal grants, and are now

somewhat above their pre-pandemic levels.

Debt held by

the public

100

120

Percent of nominal GDP

1.0

1.5

2.0

2.5

3.0

3.5

30. Federal government debt and net interest outlays

Percent of nominal GDP

1904 1924 1944 1964 1984 2004 2024

Net interest outlays

on federal debt

OTE

: The data for net interest outlays are annual, begin in 1948, and

extend through 2023. Net interest outlays are the cost of servicing the

debt held by the public, oset by certain types of interest income the

government receives. Federal debt held by the public equals federal debt

excluding most intragovernmental debt, evaluated at the end of the

quarter. The data for federal debt are annual from 1901 to 1951 and a

4-quarter moving average thereafter. GDP is gross domestic product.

OURCE

: For GDP, Bureau of Economic Analysis via Haver

Analytics; for federal debt, Congressional Budget Oce and Federal

Reserve Board, Statistical Release Z.1, “Financial Accounts of the

United States.”

Total state taxes

Percent change from year earlier

2024202220202018201620142012

31. State and local tax receipts

Quarterly

OTE

: Receipts shown are year-over-year percent changes of 4-quarter

moving averages and begin in 2012:Q4. Property taxes are p

rimarily

collected by local governments.

OURCE

: U.S. Census Bureau, Quarterly Summary of State and L

ocal

Government Tax Revenue.

Property taxes

30 PART 1: RECENT ECONOMIC AND FINANCIAL DEVELOPMENTS

Financial Developments

The expected level of the federal funds

rate over the next few years is higher

since the beginning of the year

Over the late winter and early spring, the

market-implied federal funds rate path moved

up, boosted by above-expectations ination

data that prompted market participants to

reassess the monetary policy restraint required

to return ination to 2percent. The rise in

the path was partially reversed since late

April amid mixed but generally softer-than-

expected data on real activity and ination.

Since the beginning of the year, on net, the

market-implied federal funds rate path rose

substantially (gure33). Financial market

prices currently suggest that investors expect

the federal funds rate to decline to about

4.9percent and 4.0percent by year-ends 2024

and 2025, respectively. Roughly consistent with

market-implied measures, respondents to the

Blue Chip Financial Forecasts survey have

signicantly revised upward their expectations

for the path of the federal funds rate, with

the average respondent in the July survey

expecting the federal funds rate to decline to

5.0percent in the fourth quarter of 2024—

0.6percentage point higher than anticipated at

the end of last year.

Yields on U.S. nominal Treasury securities

are higher on net

Consistent with the upward revision in the

market-implied federal funds rate path,

yields on shorter-term Treasury securities

rose notably between mid-February and late

April before retracing some of the increase

afterward. Yields on longer-term nominal

Treasury securities moved similarly with yields

on shorter-term nominal Treasury securities.

On balance, nominal Treasury yields are

moderately higher than at the beginning of the

year across the maturity spectrum (gure34).

An increase in real yields—as measured

by yields on Treasury Ination-Protected

Securities—accounted for a large portion of

the rise in nominal Treasury yields, especially

at longer maturities.

December 29, 2023

2.5

3.0

3.5

4.0

4.5

5.0

5.5

Percent

202820272026202520242023

33. Market-implied federal funds rate path

Quarterly

June 28, 2024

OTE

: The federal funds rate path is implied by quotes on overnight

index swaps—a derivative contract tied to the eective federal funds rate.

The implied path as of December 29, 2023, is compared with that as of

June 28, 2024. The path is estimated with a spline approach, assuming a

term premium of 0 basis points. The December 29, 2023, path extends

through 2027:Q4 and the June 28, 2024, path through 2028:Q2.

OURCE

: Bloomberg; Federal Reserve Board sta estimates.

2-year

5-year

Percent

20242023202220212020201920182017

34. Yields on nominal Treasury securities

Daily

OURCE

: Department of the Treasury via Haver Analytics.

10-year

18.5

19.0

19.5

20.0

20.5

Millions of jobs

2024202220202018201620142012201020082006

Monthly

32. State and local government payroll employment

OURCE

: Bureau of Labor Statistics via Haver Analytics.

MONETARY POLICY REPORT: JULY 2024 31

Yields on other long-term debt uctuated

with Treasury yields

Yields on corporate bonds generally followed

the movements in longer-term Treasury yields

and increased since the beginning of the year

for both the investment- and speculative-grade

segments of the market (gure35). Both yield

spreads on investment- and speculative-grade

corporate bonds over comparable-maturity

Treasury securities remain near the low end

of their respective historical distributions

as corporate bond investors appeared to be

pricing in a generally optimistic outlook.

Yields on municipal bonds remain at elevated

levels relative to rates prevailing before the

recent tightening cycle, having increased

moderately since January. Meanwhile,

spreads of municipal bond yields to yields

on comparable-maturity Treasury securities

were relatively little changed, on net, and are

at compressed levels relative to their historical

distribution. Yields on agency mortgage-

backed securities (MBS)—an important

inuence on home mortgage interest rates—

increased since the start of the year (gure36).

Agency MBS spreads to Treasury securities

remain elevated relative to pre-pandemic levels,

due in part to elevated interest rate volatility,

which increases the risk of holding MBS.

Broad equity price indexes increased

Broad equity price indexes rose substantially

since the start of the year, on net, led by large

technology rms (gure37). While equity

prices remained sensitive to ination news,

equity investors appeared to be generally

sanguine about the prospect of ination

coming down without a sharp downturn in

activity. First-quarter corporate earnings

releases, which were generally solid, also

supported equity valuations. Meanwhile,

equity prices for small-cap rms were little

changed. Equity prices for large banks

increased, on net, while equity prices for

regional banks declined, reecting lingering

concerns about the health of these banks

related in part to the quality of their

commercial real estate loans. One-month

option-implied volatility on the S&P 500

High-yield corporate

Municipal

Percent

20242023202220212020201920182017

35. Corporate bond yields, by securities rating, and

municipal bond yield

Daily

Investment-grade corporate

OTE: Investment-grade corporate reects the eective yield of the

ICE Bank of America Merrill Lynch (BofAML) triple-B U.S.

Corporate

Index (C0A4). High-yield corporate reects the eective yield of the ICE

BofAML High Yield Index (H0A0). Municipal reects the yield to worst

of the ICE BofAML U.S. Municipal Securities Index (U0A0).

OURCE

:ICE Data Indices, LLC, used with permission.

Yield

100

150

200

250

Basis points

20242023202220212020201920182017

36. Yield and spread on agency mortgage-backed

securities

Percent

Spread

OTE: The data are daily. Yield shown is for the uniform

mortgage-backed securities 30-year current coupon, the coupon rate at

which new mortgage-backed securities would be priced at par, or face,

value for dates after May 31, 2019; for earlier dates, the yield shown is for

the Fannie Mae 30-year current coupon. Spread shown is to the average

of the 5-year and 10-year nominal Treasury yields.

OURCE: Department of the Treasury; J.P. Morgan. Courtesy of J.P.

32 PART 1: RECENT ECONOMIC AND FINANCIAL DEVELOPMENTS

index—the VIX—uctuated somewhat,

reaching its peak so far this year in early

April amid increased ination concerns and

geopolitical tensions, but quickly retraced and

ended the period little changed (gure38).

Currently, the VIX stands close to its typical

historical level that was observed before the

pandemic. (For a discussion of nancial

stability issues, see the box “Developments

Related to Financial Stability.”)

Major asset markets functioned in an

orderly manner, despite some indicators

pointing to low liquidity

Functioning of the Treasury securities market

has continued to be orderly. While a number

of measures of Treasury market liquidity

remain low by historical standards, some of

these measures—such as on-the-run securities

market depth, a measure of the availability

of securities to transact at the best quoted

prices—improved modestly since January.

Liquidity in the equity market remained low

compared with pre-pandemic levels, and

liquidity conditions deteriorated slightly since

the beginning of the year. The depth of the

S&P 500 futures market decreased a bit, and

the price impact increased slightly. Corporate

and municipal bond markets continued

to function well, and trading conditions

remained stable; transaction costs in these

markets continued to be fairly low by historical

standards.

Short-term funding market conditions

remained stable

Conditions in overnight money markets

remained stable, with spreads of money

market rates to the Federal Reserve’s

administered rates roughly unchanged outside

of month-end dates. Since the beginning of

the year, the eective federal funds rate has

stayed 7 basis points below the interest rate

on reserve balances, and other unsecured

overnight rates have been around similar levels

with limited volatility. The Secured Overnight

Financing Rate has remained 1 or 2 basis

points above the oering rate on the overnight

S&P 500 index

100

125

150

175

December 31, 2019 = 100

20242023202220212020201920182017

37. Equity prices

Daily

Dow Jones bank index

OURCE: S&P Dow Jones Indices LLC via Bloomberg. (For Dow

Jones Indices licensing information, see the note on the Contents page.)

VIX

Percent

20242022202020182016

38. S&P 500 volatility

Daily

Expected volatility

OTE

: The VIX is an option-implied volatility measure that represents

the expected annualized variability of the S&P 500 index over the

OURCE

: Cboe Volatility Index® (VIX®) via Bloomberg; Renitiv

DataScope; Federal Reserve Board sta estimates.

following 30 days. The expected volatility series shows a forecast of

1-month realized volatility, using a heterogeneous autoregressive model

based on 5-minute S&P 500 returns.

MONETARY POLICY REPORT: JULY 2024 33

This discussion reviews vulnerabilities in the U.S.

 nancial system. The framework used by the Federal

Reserve Board for assessing the resilience of the U.S.

 nancial system focuses on  nancial vulnerabilities

in four broad areas: asset valuations, business and

household debt, leverage in the  nancial sector, and

funding risks. All told, the  nancial system remains

sound and resilient. Valuations increased to levels that

were high relative to fundamentals across major asset

classes, with equity prices growing faster than expected

earnings and residential property prices remaining

high relative to market rents. Credit to non nancial

businesses and households relative to gross domestic

product (GDP) continued to decline, falling to nearly a

two-decade low. Most banks continued to report solid

capital levels, but fair value losses on  xed-rate assets

remained sizable. In addition, some banks continued

to rely signi cantly on uninsured deposits. Hedge fund

leverage grew to historical highs, driven primarily by

borrowing by the largest hedge funds.

Valuations rose further to levels that were high

relative to fundamentals across major asset classes.

Equity prices grew faster than expected earnings,

pushing the compensation for equity risk—computed

as the difference between the inverse of the forward

price-to-earnings ratio and expected real yields on

10-year Treasury securities—to its lowest level since

2007. Corporate bond spreads narrowed and currently

stand at levels close to historical lows. Amid limited

supply of homes available for sale, residential property

prices remained high relative to market rents, standing

near their peaks. Conditions in commercial real estate

(CRE) markets continued to deteriorate, with declining

transaction prices in most segments re ecting weak

demand. Nominal long-term Treasury yields increased

moderately since the beginning of the year and stayed

close to their highest levels over the past decade and

ahalf.

The balance sheets of non nancial businesses and

households remained strong. The combined debt of

both sectors as a share of GDP continued to decline

and sat close to its lowest level in two decades

( gureA). The decline is due to decreases in both

business- and household-sector debt relative to GDP

( gure B). Furthermore, business debt continued to

decline in real terms, and debt-servicing capacity

1.0

1.2

1.4

1.6

1.8

Ratio

2024201720102003199619891982

A. Private nonnancial-sector credit-to-GDP ratio

Quarterly

NOTE: The shaded bars with top caps indicate periods of

business

recession as dened by the National Bureau of Economic

Research:

January 1980 to July 1980, July 1981 to November 1982, July 1990

March 1991, March 2001 to November 2001, December 2007 to

June

2009, and February 2020 to April 2020. GDP is gross domestic product.

OURCE: Federal Reserve Board, Statistical Release Z.1, “Financia

Accounts of the United States”; Bureau of Economic Analysis,

national

income and product accounts; Federal Reserve Board sta calculations.

(continued on next page)

Developments Related to Financial Stability

Nonnancial business

1.0

Ratio

1.0

1.1

2024201720102003199619891982

B. Nonnancial business and household debt-to-GDP

ratios

Ratio

NOTE: The data are quarterly. The shaded bars with top caps

indicate

periods of business recession as dened by the National Bureau o

Economic Research: July 1981 to November 1982, July 1990 to Marc

1991, March 2001 to November 2001, December 2007 to June 2009, an

February 2020 to April 2020. GDP is gross domestic product.

OURCE: Federal Reserve Board, Statistical Release Z.1, “Financia

Accounts of the United States”; Bureau of Economic Analysis,

national

income and product accounts; Federal Reserve Board sta calculations.

Household

34 PART 1: RECENT ECONOMIC AND FINANCIAL DEVELOPMENTS

for CRE and consumer loans—could put downward

pressure on banks’ pro ts and their ability to build

capital through retained earnings. Outside the banking

sector, hedge fund leverage stayed near historical highs,

partly due to funds’ substantial positions in the Treasury

futures basis trade. Leverage at broker-dealers continued

to be near historically low levels, but limited capacity or

willingness of broker-dealers to intermediate in Treasury

markets during market stress remained a structural

vulnerability. Life insurers’ leverage increased and stood

around its median.

Liquidity at most domestic banks remained ample,

with limited reliance on short-term wholesale funding.

However, some banks’ reliance on uninsured deposits

remained high, and bond mutual funds’ exposure to

interest rate risk continued to be signi cant. Structural

vulnerabilities remained in other short-term funding

markets. Prime and tax-exempt money market funds, as

well as other cash-investment vehicles and stablecoins,

continued to be vulnerable to runs. Bond and loan

funds remain susceptible to redemptions during

periods of stress, with more severe pressures possible

if assets become more illiquid or redemptions become

unusually large. In addition, life insurers continued to

rely on a higher-than-average share of nontraditional

liabilities.

stayed solid for most public  rms—in large part due to

strong earnings, large cash buffers, and low borrowing

costs on existing debt. In addition, the pass-through of

higher interest rates into debt-servicing costs continues

to be muted because the share of long-term,  xed-rate

liabilities remained sizable. Corporate bond default

rates have returned to their average levels, rising from

their low points in 2021 but declining from their peaks

in the second half of 2023, suggesting that credit

quality is stabilizing with pockets of stress continuing

for the riskiest borrowers. Expectations of year-ahead

defaults stayed somewhat elevated relative to their

history. Household balance sheets are still sound, as

most homeowners have ample home equity cushions

and strong credit histories. Borrowers with prime credit

scores—for whom delinquency rates remained low and

stable across credit markets—correspond to more than

60percent of all borrowers and continued to account

for most of household debt outstanding.

Regarding vulnerabilities in the  nancial sector, most

banks continued to report capital levels well above

regulatory requirements. However, fair value losses on

 xed-rate assets remained sizable for some banks, while

parts of banks’ CRE portfolios are facing stress. Despite a

moderation in deposit out ows, higher funding costs—

together with expected increases in loss provisions

Developments Related to Financial Stability (continued)

MONETARY POLICY REPORT: JULY 2024 35

reverse repurchase agreement (ON RRP)

facility, except for short-lived upward pressure

around month-ends. Take-up at the ON RRP

facility declined in the rst quarter, reecting

an increase in the net supply of Treasury bills

and the associated upward pressure on bill

yields relative to the oered rate on ON RRP

investments as well as relatively more attractive

rates on other short-term investments such as

private repurchase agreements. However, the

pace of decline in take-up slowed somewhat

in the second quarter, primarily because

of a decline in net bill supply. (See the box

“Developments in the Federal Reserve’s

Balance Sheet and Money Markets” in Part 2.)

Assets under management of prime and

government money market funds (MMFs),

the largest investors in the ON RRP

facility, trended up as they continued to

oer favorable yields relative to most bank

deposits. Prime MMFs increased liquid

asset holdings and decreased weighted

average maturities to satisfy the Securities

and Exchange Commission’s reform

requirements that became eective in April.

Several institutional prime funds announced

conversions to government funds, while

a handful announced closures, citing the

reform’s liquidity fees starting in October as

the main driver behind the decision. However,

these announced conversions and closures are

unlikely to materially aect the funds’ usage

of the ON RRP facility, because only minor

additional portfolio changes will be required

for conversions and because the decline in

money fund assets due to funds closing is

likely too small relative to total investments in

thefacility.

Bank credit continued to expand at a

slow pace

Banks’ total loan holdings grew at about

a 2percent annualized rate in the rst ve

months of the year, modestly up from a

1.3percent rate in the fourth quarter of 2023.

The still-tepid loan growth likely reects

the eects of higher interest rates, tighter

credit standards, and economic uncertainty

36 PART 1: RECENT ECONOMIC AND FINANCIAL DEVELOPMENTS

(gure39). Banks in the SLOOS reported

generally tighter standards and weaker demand

over the rst quarter of 2024, extending

trends for standards and demand that have

been reported since the middle of 2022.

Delinquency rates continued to climb to above

their longer-run average for commercial real

estate and consumer loans in the rst quarter

of 2024 but remained in ranges observed

before the pandemic across most other credit

segments. Bank protability picked up in the

rst quarter—reversing the dip in the fourth

quarter of 2023—mainly driven by recent

rising noninterest income and reduced loan

loss provisions. Bank protability levels are

still below those that prevailed before the

pandemic, reecting rising funding costs and

subdued loan demand (gure40).

International Developments

Foreign economic growth rose after a soft

patch in the second half of2023

After a soft patch in the second half of 2023,

foreign activity appears to have improved in

both advanced foreign economies (AFEs)

and emerging market economies (EMEs).

In AFEs, growth rates returned to moderate

levels despite the eects of restrictive

monetary policy as lower ination improved

real household incomes. In Europe, energy-

intensive sectors continue to struggle amid

ongoing structural adjustment to past

increases in energy prices following Russia’s

2022 invasion of Ukraine.

In EMEs, economic growth was supported by

a rebound in exports. In addition, industrial

production in emerging Asia was supported by

rising global demand for high-tech products,

driven in part by the AI and electric vehicle

sectors. China was a signicant contributor

to the pickup in foreign aggregate growth,

boosted by both strong exports and scal

policy support, even though household

spending expanded only moderately. Notably,

activity in China’s property sector remained

extremely weak and house prices fell sharply,

Percent

2024202120182015201220092006

39. Ratio of total commercial bank credit to nominal

gross domestic product

Quarterly

OURCE

: Federal Reserve Board, Statistical Release H.8, “Assets a

Liabilities

of Commercial Banks in the United States”; Bureau o

Economic Analysis via Haver Analytics.

Return on assets

Percent, annual rate

2.0

1.5

1.0

1.5

2.0

2006 2009 2012 2015 2018 2021 2024

40. Protability of bank holding companies

Percent, annual rate

Return on equity

OTE

:The data are quarterly.

OURCE

: Federal Reserve Board, Form FR Y-9C,

Consolidated

Financial Statements for Holding Companies.

MONETARY POLICY REPORT: JULY 2024 37

prompting the authorities to introduce new

policy support measures.

Ination abroad continued to ease but

remains above central bank targets in

most regions

Foreign headline ination has continued to

stabilize overall since the middle of last year,

primarily reecting disination in AFE food

and energy prices (gures 41 and 42). That

said, the pace of disination has proved to

be slower than expected and uneven across

countries and economic sectors. As in the

U.S., the deceleration in goods prices abroad

has generally outpaced that in services prices.

Ination remains above target in Europe

but has been near zero in China. In many

economies, the main risks to continued

disination include both domestic factors,

such as sustained wage pressures, and external

geopolitical factors, such as Russia’s war

against Ukraine and developments in the

Middle East, which pose risks for supply chain

disruptions, increased trade costs, and higher

energy prices.

AFEs ex. Japan

Foreign

Percent change from year earlier

2016 2017 2018 2019 2020 2021 2022 2023 2024

41. Consumer price ination in foreign economies

Monthly

EMEs ex. China

OTE

: The advanced foreign economy (AFE) aggregate is the average

of Canada, the euro area, and the U.K., weighted by shares of U.S.

non-oil goods imports. The emerging market economy (EME) aggregate

is the average of Argentina, Brazil, Chile, Colombia, Hong Kong, India,

Indonesia, Israel, Malaysia, Mexico, the Philippines, Russia, Saudi

Arabia, Singapore, South Korea, Taiwan, Thailand, and Vietnam,

weighted by shares of U.S. non-oil goods imports. The foreign aggregate

is the import-weighted average of all aforementioned countries. The

ination measure is the Harmonised Index of Consumer Prices for the

euro area and the consumer price index for other economies.

OURCE

: Federal Reserve Board sta calculations; Haver Analytics.

Percent

2017–19

avg.

2020–21

avg.

2022 2023:H1 2023:H2 2024:Q1

Advanced foreign economies

NOTE: The advanced foreign economy aggregate is the average of Canada, the euro area, and the U.K., weighted by shares of U.S. non-oil goods

imports.

The emerging market economy aggregate is the average of Argentina, Brazil, Chile, Colombia, Hong Kong, India, Indonesia, Israel, Malaysia,

Mexico,

the Philippines, Russia, Saudi Arabia, Singapore, South Korea, Taiwan, Thailand, and Vietnam, weighted by shares of U.S. non-oil goods

imports,

and begins in 2017:Q2. The ination measure is the Harmonised Index of Consumer Prices for the euro area and the consumer price index for

other economies. The data show percent changes from year-ago levels.

OURCE: Federal Reserve Board sta calculations; Haver Analytics.

Energy

Food

Core

Percent

2017–19

avg.

2020–21

avg.

2022 2023:H12023:H2 2024:Q1

Emerging market economies

Energy

Food

Core

42. Components of foreign consumer price ination

38 PART 1: RECENT ECONOMIC AND FINANCIAL DEVELOPMENTS

Foreign central banks cut policy rates but

remain cautious

Many foreign central banks have noted

progress in lowering ination and easing

resource tightness and have indicated that they

expect further progress. Some have begun to

cut their policy rates while continuing to stress

a data-dependent approach.

In EMEs, several central banks began easing

monetary policy late in 2023. AFE central

banks began to cut rates in the second quarter.

The Swiss National Bank, Sweden’s Riksbank,

the Bank of Canada, and the European

Central Bank all cut their policy rates amid

easing ination. Policy rate paths implied by

nancial market pricing indicate that markets

expect other AFE central banks to begin

reducing interest rates later this year. Still,

most foreign central bank communications

have also emphasized upside risks to ination

from persistent core services ination, currency

depreciation, and geopolitical tensions.

Japan has been a notable exception: Amid

persistently high Japanese ination, the Bank

of Japan (BOJ) ended its negative interest rate

policy and yield curve control in March.

Equity prices rose even as sovereign bond

yields in advanced foreign economies

increased

Foreign equity indexes rose signicantly

across AFEs and EMEs, consistent with

above-expectations economic data and

strong corporate earnings in many economies

(gure43). Nevertheless, investors withdrew

from EME-focused investment funds as higher

advanced-economy yields weighed on their

demand for EME assets. In addition, some

recent elections abroad contributed to notable

movements in equities and other asset prices.

AFE sovereign bond yields increased

signicantly in early 2024 and are up notably

since the start of the year in Germany, Japan,

and the U.K. (gure44). These increases

were driven by stronger-than-expected global

activity data and spillovers from higher U.S.

yields. Relative to late 2023, market-implied

Japan

U.K.

Euro area

100

125

150

175

200

Week ending January 4, 2019 = 100

2019 2020 2021 2022 2023 2024

43. Equity indexes for selected foreign economies

Weekly

NOTE: The data are weekly averages of daily data and extend through

June 28, 2024.

OURCE: For the euro area, Dow Jones Euro Stoxx Index; for Japan

Tokyo Stock Price Index; for China, Shanghai Composite Index; for the

U.K., FTSE 100 Index; all via Bloomberg. (For Dow Jones Indices

licensing information, see the note on the Contents page.)

China

Germany

Japan

Canada

Percent

2019 2020 2021 2022 2023 2024

44. Nominal 10-year government bond yields in

selected advanced foreign economies

Weekly

OTE

: The data are weekly averages of daily benchmark yields and

extend through June 28, 2024.

OURCE

: Bloomberg.

U.K.

MONETARY POLICY REPORT: JULY 2024 39

paths for policy rates now indicate a later start

to easing and fewer rate cuts by many central

banks. In Japan, yields were further supported

by three BOJ tightening actions: raising policy

rates from negative 0.1percent to a band of

0 to 0.1percent, discontinuing the yield curve

control framework, and issuing guidance

pointing to a potential reduction in sovereign

bond purchases.

The exchange value of the dollar rose

notably

Since year-end 2023, the broad dollar index—a

measure of the exchange value of the dollar

against a trade-weighted basket of foreign

currencies—increased signicantly, on net,

reecting dollar appreciation against both

AFE and EME currencies (gure45). The

increase in the dollar index was consistent

with a widening of interest rate dierentials

between the U.S. and the rest of the world.

100

105

110

115

Week ending December 27, 2019 = 100

2014 2016 2018 2020 2022 2024

45. U.S. dollar exchange rate index

Weekly

Dollar appreciation

OTE:The data, which are in foreign currency units per dollar, are

weekly averages of daily values of the broad dollar index and

extend

through June 28, 2024. As indicated by the arrow, increases in the data

reect U.S. dollar appreciation and decreases reect U.S. dollar

depreciation.

OURCE: Federal Reserve Board sta calculations; Federal Reserve

Board, Statistical Release H.10, “Foreign Exchange Rates.”

The Federal Open Market Committee has

held the federal funds rate steady . . .

The Federal Reserve conducts monetary

policy to promote its statutory goals of

maximum employment and price stability.

(See the box “Monetary Policy Independence,

Transparency, and Accountability.”) Ination

has eased over the past year but has remained

elevated while the economy has continued

to expand at a solid pace. Job gains have

been strong, and the unemployment rate has

remained low. Against this backdrop, the

Federal Open Market Committee (FOMC)

has maintained a restrictive stance of policy

at recent meetings to keep demand in line

with supply and reduce inationary pressures.

Since its July2023 meeting, the Committee

has maintained the target range for the federal

funds rate at 5¼ to 5½percent, after having

raised the target range a total of 525 basis

points starting in early 2022 (gure46). The

FOMC’s policy tightening actions and current

policy stance reect the Committee’s strong

commitment to return ination to its 2percent

objective. Restoring price stability is essential

to achieving maximum employment and

stable prices over the long run that benet all

Americans.

With labor market tightness continuing to ease

gradually and ination easing over the past

year, the risks to achieving the Committee’s

employment and ination goals have moved

toward better balance. The Committee remains

highly attentive to ination risks and is acutely

aware that high ination imposes signicant

hardship, especially on those least able to

meet the higher costs of essentials, like food,

housing, and transportation. In considering

any adjustments to the target range for the

federal funds rate, the Committee will carefully

assess incoming data, the evolving outlook,

and the balance of risks. The Committee does

not expect it will be appropriate to reduce

the target range until it has gained greater

condence that ination is moving sustainably

toward 2percent.

Part 2

monetary PoLicy

Target federal funds rate

2-year Treasury rate

Percent

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

46. Selected interest rates

Daily

10-year Treasury rate

OTE

: The 2-year and 10-year Treasury rates are the constant-maturity yields based on the most actively traded securities.

OURCE

: Department of the Treasury; Federal Reserve Board.

42 PART 2: MONETARY POLICY

monetary policy has become an international norm,

and economic research indicates that economic

performance has tended to be better when central

banks have such independence.

Because the Federal Reserve is accountable to

Congress and has been granted independence in

See PaulA. Volcker (1982), “Panel Discussion,” in Federal

Reserve’s First Monetary Policy Report for 1982, hearings

before the Committee on Banking, Housing, and Urban Affairs,

U.S. Senate, February11 and 25, Senate Hearing 97-48,

97th Cong. (Washington: U.S. Government Printing Of ce),

quoted text on p. 28, https://fraser.stlouisfed.org/title/monetary-

policy-oversight-671/federal-reserve-s- rst-monetary-policy-

report-1982-22312; Paul A. Volcker (1987), remarks in Federal

Reserve’s Second Monetary Policy Report for 1987, hearing

before the Committee on Banking, Housing, and Urban

Affairs, U.S. Senate, July23, 100th Cong. (Washington: U.S.

Government Printing Of ce), quoted text on p. 45, https://

fraser.stlouisfed.org/title/monetary-policy-oversight-671/

federal-reserve-s-second-monetary-policy-report-1987-22373;

Alan Greenspan (1994), remarks in The Federal Reserve

Accountability Act of 1993, hearing before the Committee

on Banking, Finance, and Urban Affairs, U.S. House of

Representatives, October13, 1993, 103rd Cong. (Washington:

U.S. Government Printing Of ce), quoted text on p. 40,

https://fraser.stlouisfed.org/title/federal-reserve-accountability-

act-1993-1154; Ben S. Bernanke (2010), “Central Bank

Independence, Transparency, and Accountability,” speech

delivered at the Institute for Monetary and Economic Studies

International Conference, Bank of Japan, Tokyo, May25,

quoted text in paragraph 2, https://www.federalreserve.gov/

newsevents/speech/bernanke20100525a.htm; Janet L. Yellen

(2010), “Macroprudential Supervision and Monetary Policy in

the Post-crisis World,” speech delivered at the Annual Meeting

of the National Association for Business Economics, Denver,

Colo., October11, quoted text in paragraph 44, https://www.

federalreserve.gov/newsevents/speech/yellen20101011a.

htm; and Jerome H. Powell (2023), “Panel on ‘Central Bank

Independence and the Mandate—Evolving Views,’ ” speech

delivered at the Symposium on Central Bank Independence,

Sveriges Riksbank, Stockholm, Sweden, January10,

quoted text in paragraph 2, https://www.federalreserve.

gov/newsevents/speech/powell20230110a.htm. A detailed

discussion of the issues involved is provided by Paul Tucker

(2018), Unelected Power: The Quest for Legitimacy in Central

Banking and the Regulatory State (Princeton, N.J.: Princeton

University Press).

2. See, for example, Christopher Crowe and Ellen E. Meade

(2008), “Central Bank Independence and Transparency:

Evolution and Effectiveness,” European Journal of Political

Economy, vol. 24 (December), pp. 763–77.

Monetary policy is carried out by the Federal

Reserve in pursuit of maximum employment and price

stability—the dual-mandate goals assigned to it by

Congress. Congress has also given the Federal Reserve

operational independence. Under this arrangement,

the Federal Reserve, rather than other parts of the

government, makes determinations about the monetary

policy actions that are most appropriate for achieving

the dual-mandate goals. This arrangement allows

monetary policy decisions to be insulated from short-

term political in uences.

There is broad support for the principles underlying

independent monetary policy. It is widely understood

that the monetary policy actions that deliver maximum

employment and price stability in the longer run may

involve restraining measures that entail short-run

economic costs, while actions that raise output and

employment to unsustainable levels have no long-run

real bene ts and may lead to elevated in ation rates.

These considerations highlight the value of monetary

policy being carried out by an independent agency

whose decisions are based on the congressionally

assigned dual mandate.

Operational independence of

1. The same basic case for independence has been sketched

by successive Federal Reserve Chairs. For example, Paul

Volcker noted in congressional testimony in February1982

that “Congress deliberately set us up with an insulation from

that kind of political pressure, and that that is a trust that

you have given us and that we mean to discharge,” and he

elaborated in July1987: “[Not] responding to all the short-

term political considerations that exist to produce easier

money than the basic situation warrants and the long-term

health of the currency and the economy warrants . . . [is]

the basic justi cation for the independence of the Federal

Reserve.” Alan Greenspan testi ed in October1993 that

there was “an awareness that independence of the central

bank is an element in keeping in ation down.” Ben Bernanke

remarked in May2010: “It is important that we maintain and

protect . . . the ability of central banks to make monetary

policy decisions based on what is good for the economy

in the longer run, independent of short-term political

considerations.” Also in 2010, Janet Yellen (who was at the

time Vice Chair of the Federal Reserve Board and who later

served as Federal Reserve Chair) observed: “The principle

of central bank independence in the conduct of monetary

policy is widely accepted as vital to achieving maximum

employment and price stability.” Chair Jerome Powell likewise

stated in January2023 that “the case for monetary policy

independence lies in the bene ts of insulating monetary

policy decisions from short-term political considerations.”

(continued)

Monetary Policy Independence, Transparency, and

Accountability

MONETARY POLICY REPORT: JULY 2024 43

the 1980s regularly gave congressional testimony and

speeches on monetary policy. Nevertheless, important

aspects of transparency were missing. The FOMC

in these decades did not provide, in a systematic

and timely manner, information on its monetary

policy decisions.

In particular, it did not follow a

regular practice of issuing, after policy meetings, an

announcement of Committee policy actions and the

rationale for those actions. The situation changed

starting in the mid-1990s. Re ecting on this change,

in 2023 Chair Powell noted: “Over the past several

decades we have steadily broadened our efforts to

provide meaningful transparency about the basis for,

and consequences of, the decisions we make.”

The shift to greater transparency has re ected

not only the fact that transparency supports the

Federal Reserve’s accountability, but also widespread

acceptance that transparency can contribute to the

effectiveness of monetary policy. Explanations to the

general public of the FOMC’s decisions, strategy, and

plans tend to enhance the effects of monetary policy

actions on  nancial conditions, economic activity,

and in ation. For example, a numerical in ation

objective can be helpful in anchoring longer-run

in ation expectations, while forward guidance (which

is at times provided in FOMC statements) about the

federal funds rate can in uence key longer-term interest

rates by shaping the private sector’s assessment of the

likely future course of the funds rate. Consequently,

the FOMC has observed that clarity about monetary

4. See David E. Lindsey (2003), “A Modern History of

FOMC Communication: 1975–2002,” memorandum to the

Federal Open Market Committee, Board of Governors of

the Federal Reserve System, Division of Monetary Affairs,

June24, https://www.federalreserve.gov/monetarypolicy/files/

FOMC20030624memo01.pdf; and Ben S. Bernanke (2013),

“A Century of US Central Banking: Goals, Frameworks,

Accountability,” Journal of Economic Perspectives, vol. 27

(Fall), pp. 3–16.

5. See Powell, “Panel on ‘Central Bank Independence,’”

in box note 1 (quoted text in paragraph 4). See also Alan

S. Blinder (2002), “Through the Looking Glass: Central

Bank Transparency,” CEPS Working Paper 86 (Princeton,

N.J.: Princeton University Department of Economics,

December), https://gceps.princeton.edu/wp-content/

uploads/2017/01/86blinder.pdf.

the setting of monetary policy, it is vitally important

that the Federal Reserve be transparent to Congress

and the American people about its monetary policy

actions. Transparency requires that the Federal Open

Market Committee (FOMC) explain the reasons for

its monetary policy decisions, including how these

decisions relate to its statutory goals. This feature of

transparency underlies the FOMC’s assessment that

“transparency and accountability . . . are essential in a

democraticsociety.”

Speci cally, monetary policy transparency consists

of the process in which the Federal Reserve provides to

the American people and their elected representatives

information about the objectives and strategy of

monetary policy, announces its decisions regarding the

setting of its policy instruments, explains the reasoning

behind those decisions, and provides detailed records

of monetary policy committee meetings. The Federal

Reserve promotes monetary policy transparency in

multiple ways, including through testimony given

by Federal Reserve policymakers at congressional

hearings, speeches by the Chair and other FOMC

meeting participants on economic and policy

developments, the FOMC’s postmeeting statements,

the published minutes and transcripts of each

FOMC meeting, the quarterly Summary of Economic

Projections (SEP), the Chair’s press conferences, and

dialogues between FOMC participants and community

representatives across thecountry.

A strong emphasis on transparency has

characterized the past 30years of U.S. monetary policy.

Previously, Federal Reserve of cials from the 1950s to

3. See the FOMC’s Statement on Longer-Run Goals and

Monetary Policy Strategy (quoted text in paragraph 1),

available on the Board’s website at https://www.federalreserve.

gov/monetarypolicy/files/fomc_longerrungoals.pdf. More

speci cally, paragraph 1 of this statement indicates that “the

Committee seeks to explain its monetary policy decisions

to the public as clearly as possible” and that “such clarity

facilitates . . . transparency and accountability, which are

essential in a democratic society.” In the same spirit, a major

contribution to the research literature on the practice of

monetary policy—the 1999 book In ation Targeting—earlier

observed: “Transparency and communication together

enhance accountability.” See Ben S. Bernanke, Thomas

Laubach, Frederic S. Mishkin, and Adam S. Posen (1999),

In ation Targeting: Lessons from the International Experience

(Princeton N.J.: Princeton University Press), quoted text

on p.296.

(continued on next page)

44 PART 2: MONETARY POLICY

At the end of 2007, the FOMC began publishing,

on a quarterly basis, the SEP, which distills information

about individual meeting participants’ economic

projections. Since then, numerous features have been

added to the SEP, including longer-run projections

in 2009 and federal funds rate projections in 2012.

In 2011, Chair Bernanke started holding regular

postmeeting press conferences. In 2019, Chair Powell

initiated the practice of holding press conferences after

every FOMC meeting.

With regard to its strategy, in January2012 the

FOMC issued a Statement on Longer-Run Goals and

Monetary Policy Strategy, or “consensus statement.” The

consensus statement has been reaf rmed in the years

since 2012, and it has been revised several times. From

its inception, the consensus statement made the price-

stability component of the dual mandate numerically

precise by indicating that Federal Reserve policymakers

interpret it as corresponding to a 2percent longer-

run in ation rate (in the personal consumption

expenditures price index). Also in the area of strategy,

in 2018 the Federal Reserve launched the practice of

having a review of monetary policy strategy, tools, and

communication practices roughly every  ve years. The

 rst such framework review took place from 2019 to

2020. An innovation of this review was the holding,

around the country, of Fed Listens events, consisting

of a dialogue between Federal Reserve policymakers

and community members on monetary policy and

economic issues. The Federal Reserve has continued

to hold Fed Listens events between the periods of

framework review.

The framework review process also included

internal FOMC deliberations. These deliberations took

place at Committee meetings and were detailed in

the publicly released FOMC meeting minutes. The

Federal Reserve staff memos that served as an input

into these deliberations were released publicly after the

completion of the 2019–20 review. The next framework

review is scheduled to begin later this year.

Along with the transparency-enhancing activities,

documents, and statements described earlier, further

information on monetary policy decisions is provided

in the frequent speeches, interviews, and testimony

given by FOMC meeting participants.

policy decisions “increases the effectiveness of

monetarypolicy.”

Today the acceptance of the need for, and bene ts

of, monetary policy transparency is re ected in the

large volume of material that the FOMC and the

individual Committee participants provide about their

decisions and thinking.

A major step in the direction

of greater transparency took place in 1994, when

announcements of policy changes began to be issued

after FOMC meetings. By the end of the decade, these

releases had evolved into the now standard and key

part of the Committee’s policy communications—a

statement released by the Committee after each

meeting that announces the decision on the federal

funds rate target range and any other policy actions,

puts that decision in the context of the Committee’s

assessment of incoming data and the economic

outlook, and gives the record of the vote on the action.

Further information about Committee decisions is

provided via FOMC meeting minutes, released three

weeks after each FOMC meeting (a shorter lag than

that prevailing until the mid-2000s). After  ve years,

transcripts of the FOMC meetings are made public.

6. See the FOMC’s Statement on Longer-Run Goals and

Monetary Policy Strategy, in box note 3 (quoted text in

paragraph 1).

7. For further details, see Board of Governors of the

Federal Reserve System (2019), “Review of Monetary Policy

Strategy, Tools, and Communications,” webpage, https://www.

federalreserve.gov/monetarypolicy/review-of-monetary-policy-

strategy-tools-and-communications-fed-listens-timelines.htm;

and Jerome H. Powell (2024), “Opening Remarks,” speech

delivered at the Stanford Business, Government, and Society

Forum, Stanford Graduate School of Business, Stanford, Calif.,

April3, https://www.federalreserve.gov/newsevents/speech/

powell20240403a.htm.

8. In the past 15years, information about the Committee’s

balance sheet policy has been an important part of the

postmeeting statement and related FOMC statements.

A detailed account of key communications on balance

sheet policy that the Committee has issued in recent years

is provided in Board of Governors of the Federal Reserve

System (2024), “FOMC Communications Related to Policy

Normalization,” webpage, https://www.federalreserve.gov/

monetarypolicy/policy-normalization.htm. A longer-term

chronology, covering developments over the past decade,

is available at Board of Governors of the Federal Reserve

System (2024), “History of the FOMC’s Policy Normalization

Discussions and Communications,” webpage, https://www.

federalreserve.gov/monetarypolicy/policy-normalization-

discussions-communications-history.htm.

Monetary Policy Independence (continued)

MONETARY POLICY REPORT: JULY 2024 45

. . . and has continued the process of

signicantly reducing its holdings of

Treasury and agency securities

The FOMC began reducing its securities

holdings in June2022 and, since then,

has continued to implement its plan for

signicantly reducing the size of the Federal

Reserve’s balance sheet in a predictable

manner.

For some time, principal payments

from securities held in the System Open

Market Account (SOMA) had been reinvested

only to the extent that they exceeded monthly

caps of $60billion per month for Treasury

securities and $35billion per month for agency

debt and agency mortgage-backed securities

(MBS). On June1, the Committee slowed

the pace of decline of its securities holdings,

consistent with its Plans for Reducing the

Size of the Federal Reserve’s Balance Sheet.

Specically, the Committee reduced the

redemption cap on Treasury securities to

$25billion per month and maintained the

redemption cap on agency debt and agency

MBS at $35billion per month. Any proceeds

9. See the May4, 2022, press release regarding the

Plans for Reducing the Size of the Federal Reserve’s

Balance Sheet, available on the Board’s website at https://

www.federalreserve.gov/newsevents/pressreleases/

monetary20220504b.htm.

in excess of the agency debt and agency

MBS cap would be reinvested into Treasury

securities, consistent with the Committee’s

intention to hold primarily Treasury securities

in the longer run. The decision to slow the

pace of balance sheet runo does not have

implications for the stance of monetary

policy and does not mean that the balance

sheet will ultimately shrink by less than it

would otherwise. Rather, a slower pace of

balance sheet runo helps facilitate a smooth

transition from abundant to ample reserve

balances and gives the Committee more time

to assess market conditions as the balance

sheet continues to shrink. It will also allow

banks, and short-term funding markets more

generally, additional time to adjust to the lower

level of reserves, thus reducing the probability

that money markets experience undue stress

that could require an early end to runo.

The SOMA holdings of Treasury and agency

securities have declined about $1.7trillion

since the start of the balance sheet reduction

and about $260billion since February2024

to around $6.8trillion, a level equivalent to

24percent of U.S. nominal gross domestic

product, down from its peak of 35percent

reached at the end of 2021 (gure47). Also,

since February2024, reserve balances—

Trillions of dollars

20242023202220212020201920182017201620152014201320122011201020092008

47. Federal Reserve assets and liabilities

Weekly

Other assets

Credit and liquidity facilities

Agency debt and mortgage-backed securities holdings

Treasury securities held outright

Federal Reserve notes in circulation

Deposits of depository institutions (reserves)

Reverse repurchase agreements

Capital and other liabilities

OTE

: “Other assets” includes repurchase agreements, FIMA (Foreign and International Monetary Authorities) repurchase agreements, and unamortized

premiums

and discounts on securities held outright. “Credit and liquidity facilities” consists of primary, secondary, and seasonal credit; term auction credit;

central

bank liquidity swaps; support for Maiden Lane, Bear Stearns Companies, Inc., and AIG; and other credit and liquidity facilities, including the

Primary

Dealer Credit Facility, the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, the Commercial Paper Funding

Facility,

the Term Asset-Backed Securities Loan Facility, the Primary and Secondary Market Corporate Credit Facilities, the Paycheck Protection Program

Liquidity Facility, the Municipal Liquidity Facility, and the Main Street Lending Program. “Agency debt and mortgage-backed sec

urities holdings” includes

agency

residential mortgage-backed securities and agency commercial mortgage-backed securities. “Capital and other liabilities” includes the U.S. Treasury

General

Account and the U.S. Treasury Supplementary Financing Account. The key identies shaded areas in order from top to bottom. The data extend

through June 19, 2024.

OURCE

: Federal Reserve Board, Statistical Release H.4.1, “Factors Aecting Reserve Balances.”

46 PART 2: MONETARY POLICY

the largest liability item on the Federal

Reserve’s balance sheet—have declined about

$180billion to a level of around $3.4trillion.

The smaller decline of reserve balances

compared with the decline in SOMA holdings

reects decreases in nonreserve liabilities such

as balances at the overnight reverse repurchase

agreement facility. (See the box “Developments

in the Federal Reserve’s Balance Sheet and

Money Markets.”)

The FOMC has stated that it intends to

maintain securities holdings at amounts

consistent with implementing monetary

policy eciently and eectively in its ample-

reserves regime—that is, a regime in which an

ample supply of reserves ensures that control

over the level of the federal funds rate and

other short-term interest rates is exercised

primarily through the setting of the Federal

Reserve’s administered rates and in which

active management of the supply of reserves

is not required. To ensure a smooth transition

to ample reserve balances, the FOMC slowed

the pace of decline of its securities holdings

in June2024 and intends to stop reductions in

its securities holdings when reserve balances

are somewhat above the level that the FOMC

judges to be consistent with ample reserves.

Once balance sheet runo has ceased, reserve

balances will likely continue to decline at

a slower pace—reecting growth in other

Federal Reserve liabilities—until the FOMC

judges that reserve balances are at an ample

level. Thereafter, the FOMC will manage

securities holdings as needed to maintain

ample reserves over time.

The FOMC will continue to monitor the

implications of incoming information for

the economic outlook and the balance

ofrisks

As already indicated, the FOMC is strongly

committed to returning ination to its

2percent objective, and, in considering any

adjustments to the target range for the federal

funds rate, the Committee will carefully assess

incoming data, the evolving outlook, and

the balance of risks. Its assessments will take

into account a wide range of information,

including readings on labor market conditions,

ination pressures and ination expectations,

and nancial and international developments.

The Committee has noted that it is also

prepared to adjust its approach to reducing the

size of the balance sheet in light of economic

and nancial developments.

In addition to considering a wide range of

economic and nancial data, the FOMC

gathers information from business contacts

and other informed parties around the

country, as summarized in the Beige Book.

The Federal Reserve has regular arrangements

under which it hears from a broad range of

participants in the U.S. economy about how

monetary policy aects people’s daily lives

and livelihoods. In particular, the Federal

Reserve has continued to gather insights into

these matters through the Fed Listens initiative

and the Federal Reserve System’s community

development outreach.

Policymakers also routinely consult

prescriptions for the policy interest rate

provided by various monetary policy rules.

These rule prescriptions can provide useful

benchmarks for the conduct of monetary

policy. However, simple rules cannot capture

all of the complex considerations that go

into the formation of appropriate monetary

policy, and many practical considerations

make it undesirable for the FOMC to adhere

strictly to the prescriptions of any specic

rule. Nevertheless, some principles of good

monetary policy are embedded in these simple

rules. (See the box“Monetary Policy Rules in

the Current Environment.”)

MONETARY POLICY REPORT: JULY 2024 47

announced that beginning in June, the Committee

would slow the pace of decline of its securities

holdings, consistent with its Plans for Reducing the Size

of the Federal Reserve’s Balance Sheet.

dated February29, 2024. As a result, this discussion refers

to changes in the Federal Reserve’s balance sheet since late

February.

2. See the May4, 2022, press release regarding the Plans

for Reducing the Size of the Federal Reserve’s Balance Sheet,

available on the Board’s website at https://www.federalreserve.

gov/newsevents/pressreleases/monetary20220504b.htm.

The Federal Open Market Committee (FOMC)

continued to reduce the size of the Federal Reserve’s

System Open Market Account (SOMA) portfolio. Since

the previous report, total Federal Reserve assets have

decreased $315billion, leaving the total size of the

balance sheet at $7.3trillion, $1.7trillion smaller since

the reduction in the size of the SOMA portfolio began

in June2022 ( gures A and B).

On May1, the FOMC

1. The last Federal Reserve Board statistical release H.4.1

(“Factors Affecting Reserve Balances”) before the publication

of the previous Monetary Policy Report on March1 was

Developments in the Federal Reserve’s Balance Sheet

and Money Markets

A. Balance sheet comparison

Billions of dollars

June 19, 2024 February 28, 2024

Change

(since February

2024)

Memo:

Change (since

Fed’s balance sheet

reduction began on

June 1, 2022)

Assets

Total securities

Treasury securities 4,453 4,661 −208 −1,318

Agency debt and MBS 2,357 2,406 −49 −353

Unamortized premiums 265 274 −8 −72

Repurchase agreements 0 0 0 0

Loans and lending facilities

PPPLF 3 3 0 −17

Discount window 7 2 5 6

BTFP 107 163 −56 107

Other loans and lending facilities

11 15 −4 −23

Central bank liquidity swaps 0 0 0 0

Other assets 49 44 6 7

Total assets 7,253 7,568 −315 −1,663

Liabilities

Federal Reserve notes 2,301 2,282 18 70

Reserves held by depository institutions 3,366 3,541 −175 9

Reverse repurchase agreements

Foreign o cial and international accounts 389 339 50 124

Others 376 570 −194 −1,589

U.S. Treasury General Account 782 768 14 2

Other deposits 158 162 −4 −90

Other liabilities and capital −120 −94 −25 −188

Total liabilities and capital 7,253 7,568 −315 −1,663

N: MBS is mortgage-backed securities. PPPLF is Paycheck Protection Program Liquidity Facility. BTFP is Bank Term Funding Program. Components may not sum to

totals because of rounding.

S: Federal Reserve Board, Statistical Release H.4.1, “Factors A ecting Reserve Balances.”

(continued on next page)

48 PART 2: MONETARY POLICY

reserve-draining effect of balance sheet runoff was

more than offset by a $1.6trillion decline in balances at

the overnight reverse repurchase agreement (ONRRP)

facility. Since February2024, usage of the ON RRP

facility has continued to decline, albeit at a slower pace

than that seen over the second half of 2023. Usage

of the facility has averaged around $450billion since

the end of February ( gure C). Reduced usage of the

ON RRP facility largely re ects money market mutual

funds shifting their portfolios toward higher-yielding

investments, including Treasury bills and private-market

repurchase agreements.

Conditions in overnight money markets remained

stable. The ON RRP facility continued to serve its

intended purpose of supporting the control of the

effective federal funds rate (EFFR), and the Federal

Reserve’s administered rates—the interest rate on

reserve balances and the ON RRP offering rate—

remained highly effective at maintaining the EFFR

within the target range.

The Federal Reserve’s expenses have continued to

exceed its income over recent months. The Federal

Reserve’s deferred asset has increased $23billion

since late February to a level of around $175billion.

Negative net income and the associated deferred asset

4. The deferred asset is equal to the cumulative shortfall of

net income and represents the amount of future net income

that will need to be realized before remittances to the Treasury

resume. Although remittances are suspended at the time of this

Reserves, the largest liability item on the Federal

Reserve’s balance sheet, have declined $175billion

since late February2024 to a level of about

$3.4trillion.

Since the beginning of balance sheet

runoff, reserves have been little changed because the

3. Reserve balances consist of deposits held at the

Federal Reserve Banks by depository institutions (DIs), such

as commercial banks, savings banks, credit unions, thrift

institutions, and U.S. branches and agencies of foreign banks.

(continued)

Trillions of dollars

2019 2020 2021 2022 2023 2024

B. Federal Reserve assets

Weekly

OTE

: MBS is mortgage-backed securities. The key identies shaded areas

in order from top to bottom. The data extend through June 19, 2024.

OURCE

: Federal Reserve Board, Statistical Release H.4.1, “Factors

Aecting Reserve Balances.”

Other assets

Loans

Central bank liquidity swaps

Repurchase agreements

Agency debt and MBS

Treasury securities

held outright

Federal Reserve’s Balance Sheet and Money Markets (continued)

MONETARY POLICY REPORT: JULY 2024 49

Trillions of dollars

2019 2020 2021 2022 2023 2024

C. Federal Reserve liabilities

Weekly

NOTE: “Capital and other liabilities” includes the liability for e

arnings

remittances

due to the U.S. Treasury and contributions from the

U.S.

Treasury.

The current sum is negative on June 19, 2024, because of

the

deferred asset that the Federal Reserve reports. The key identies shaded areas

in order from top to bottom. The data extend through June 19, 2024.

OURCE: Federal Reserve Board, Statistical Release H.4.1,

“Factors

Aecting Reserve Balances.”

Overnight reverse repurchase (ON RRP) agreements

Deposits of depository institutions (reserves)

U.S. Treasury General Account

Other deposits

Capital and other liabilities

Federal Reserve notes

While the reduction in the size of the SOMA

portfolio has continued as planned, amid the banking-

sector developments of spring 2023, the Federal

Reserve provided liquidity to help ensure the stability

of the banking system and the ongoing provision of

money and credit to the economy. Loans extended

under the Bank Term Funding Program (BTFP)—which

made longer-term funding and liquidity available to

eligible depository institutions to support American

households and businesses and ceased making

new loans as scheduled on March11, 2024—have

decreased $56billion to a level of $107billion since

February2024.

expenses will fall over time in line with the decline in the

Federal Reserve’s liabilities.

6. The BTFP was established under section 13(3) of the

Federal Reserve Act with the approval of the Secretary of the

Treasury. The BTFP offered loans of up to one year to banks,

savings associations, credit unions, and other eligible DIs

against collateral such as U.S. Treasury securities, U.S. agency

securities, and U.S. agency mortgage-backed securities. For

more details, see Board of Governors of the Federal Reserve

System (2024), “Bank Term Funding Program,” webpage,

June11, https://www.federalreserve.gov/ nancial-stability/

bank-term-funding-program.htm.

do not affect the Federal Reserve’s conduct of monetary

policy or its ability to meet its  nancial obligations.

report, over the past decade and a half, the Federal Reserve

has remitted over $1trillion to the Treasury.

5. Net income is expected to turn positive again as interest

expenses fall, and remittances will resume once the temporary

deferred asset falls to zero. As a result of the ongoing reduction

in the size of the Federal Reserve’s balance sheet, interest

50 PART 2: MONETARY POLICY

reduce its holdings of Treasury securities and agency

debt and agency mortgage-backed securities.

Selected Policy Rules: Descriptions

In many economic models, desirable economic

outcomes can be achieved over time if monetary

policy responds to changes in economic conditions

in a manner that is predictable and adheres to some

key design principles. In recognition of this idea,

economists have analyzed many monetary policy

rules, including the well-known Taylor (1993) rule,

the “balanced approach” rule, the “adjusted Taylor

(1993)” rule, and the “ rst difference” rule.

Figure A

shows these rules, along with a “balanced approach

1. The Taylor(1993) rule was introduced in John

B. Taylor (1993), “Discretion versus Policy Rules in Practice,”

Carnegie-Rochester Conference Series on Public Policy, vol. 39

(December), pp. 195–214. The balanced-approach rule was

analyzed in John B. Taylor (1999), “A Historical Analysis of

Monetary Policy Rules,” in John B. Taylor, ed., Monetary Policy

Rules (Chicago: University of Chicago Press), pp. 319–41. The

adjusted Taylor(1993) rule was studied in David Reifschneider

and John C. Williams (2000), “Three Lessons for Monetary

Policy in a Low-In ation Era,” Journal of Money, Credit and

Banking, vol. 32 (November), pp. 936–66. The  rst-difference

rule is based on a rule suggested by Athanasios Orphanides

(2003), “Historical Monetary Policy Analysis and the Taylor

Rule,” Journal of Monetary Economics, vol. 50 (July),

As part of their monetary policy deliberations,

policymakers regularly consult the prescriptions

of a variety of simple interest rate rules without

mechanically following the prescriptions of any

particular rule. Simple interest rate rules relate a

policy interest rate, such as the federal funds rate, to a

small number of other economic variables—typically

including the current deviation of in ation from its

target value and a measure of resource slack in

the economy.

Since 2021, in ation has run above the Federal

Open Market Committee’s (FOMC) 2percent longer-

run objective, and labor market conditions have been

tight. Although in ation remains elevated, it has eased

over the past year, and labor supply and demand

have come into better balance. Against this backdrop,

the simple monetary policy rules considered in this

discussion have called for levels of the policy interest

rate over 2021, 2022, and the  rst half of 2023 that

were elevated relative to the FOMC’s target range for

the federal funds rate. However, the rates prescribed

by these rules for the  rst quarter of 2024, the most

recent quarter for which data are available, are close

to or below the current target range for the federal

funds rate at 5¼ to 5½percent. In support of its

goals of maximum employment and in ation at the

rate of 2percent over the longer run, the FOMC has

maintained the target range for the federal funds rate

at 5¼ to 5½percent since last July while continuing to

(continued)

A. Monetary policy rules

Balanced-approach rule

Balanced-approach (shortfalls) rule

First-dierence rule

Taylor (1993) rule

Adjusted Taylor (1993) rule

N: R

T93

, R

BAS

, R

T93adj

, and R

represent the values of the nominal federal funds rate prescribed by the Taylor (1993),

balanc

ed-approach, balanced-approach (shortfalls), adjusted Taylor (1993), and rst-dierence rules, respectively.

t−1

denotes the midpoint of the target range for the federal funds rate for quarter t−1, u

is the unemployment rate in quarter t, and r

is the

vel of the neutral real federal funds rate in the longer run that is expected to be consistent with sustaining maximum employment and keepin

ation at the Federal Open Market Committee’s 2percent longer-run objective, represented by π

. π

denotes the realized 4-quarter price

ation for quarter t. In addition, u

is the rate of unemployment expected in the longer run. Z

is the cumulative sum of past deviations of

e federal funds rate from the prescriptions of the Taylor (1993) rule when that rule prescribes setting the federal funds rate below an eective

wer bound (ELB) of 12.5 basis points.

The Taylor (1993) rule and other policy rules generally respond to the deviation of real output from its full capacity level. In these equations,

e output gap has been replaced with the gap between the rate of unemployment in the longer run and its actual level (using a relationship known

Okun’s law) to represent the rules in terms of the unemployment rate. The rules are implemented as responding to core personal consumption

penditures (PCE) ination rather than to headline PCE ination because current and near-term core ination rates tend to outperform headline

ination rates as predictors of the medium-term behavior of headline ination. Box note 1 provides references for the policy rules.

T93

= r

+ π

+ 0.5(π

− π

) + (u

− u

)

= R

t−1

+ 0.5(π

− π

) + (u

− u

) − (u

−

− u

t−4

)

T93adj

= max{R

T93

− Z

ELB}

BAS

= r

+ π

+ 0.5(π

− π

) + 2min{(u

− u

), 0}

= r

+ π

+ 0.5(π

− π

) + 2(u

− u

)

Monetary Policy Rules in the Current Environment

MONETARY POLICY REPORT: JULY 2024 51

Unlike the other simple rules featured here, the

adjusted Taylor (1993) rule recognizes that the federal

funds rate cannot be reduced materially below the

effective lower bound (ELB). By contrast, the standard

Taylor (1993) rule prescribed policy rates that, during

the pandemic-induced recession, were far below

zero. To make up for the cumulative shortfall in policy

accommodation following a recession during which the

federal funds rate is constrained by its ELB, the adjusted

Taylor (1993) rule prescribes delaying the return of the

policy rate to the (positive) levels prescribed by the

standard Taylor (1993) rule.

Policy Rules: Limitations

As benchmarks for monetary policy, simple

policy rules have important limitations. One of these

limitations is that the simple policy rules mechanically

respond to only a small set of economic variables and

thus necessarily abstract from many of the factors that

the FOMC considers when it assesses the appropriate

setting of the policy rate. In addition, the structure of

the economy and current economic conditions differ

in important respects from those prevailing when

the simple policy rules were originally devised and

proposed. As a result, most simple policy rules do not

take into account the ELB on interest rates, which limits

the extent to which the policy rate can be lowered to

support the economy. This constraint was particularly

evident during the pandemic-driven recession, when

the lower bound on the policy rate motivated the

FOMC’s other policy actions to support the economy.

Relatedly, another limitation is that simple policy rules

do not explicitly take into account other important tools

of monetary policy, such as balance sheet policies.

Finally, simple policy rules are not forward looking

and do not allow for important risk-management

considerations, associated with uncertainty about

economic relationships and the evolution of the

economy, that factor into FOMC decisions.

Selected Policy Rules: Prescriptions

Figure B shows historical prescriptions for the federal

funds rate under the  ve simple rules considered. For

each quarterly period, the  gure reports the policy rates

prescribed by the rules, taking as given the prevailing

economic conditions and survey-based estimates of u

and r

at the time. All of the rules considered called for

a highly accommodative stance of monetary policy in

response to the pandemic-driven recession, followed by

(shortfalls)” rule, which responds to the unemployment

rate only when it is higher than its estimated longer-

run level.

All of the simple rules shown embody key

design principles of good monetary policy, including

the requirement that the policy rate should be adjusted

by enough over time to ensure a return of in ation to

the central bank’s longer-run objective and to anchor

longer-term in ation expectations at levels consistent

with that objective.

All  ve rules feature the difference between in ation

and the FOMC’s longer-run objective of 2percent. The

 ve rules use the unemployment rate gap, measured

as the difference between an estimate of the rate of

unemployment in the longer run (u

) and the current

unemployment rate; the  rst-difference rule includes

the change in the unemployment rate gap rather than

its level.

All but the  rst-difference rule include an

estimate of the neutral real interest rate in the longer

run (r

pp.983–1022. A review of policy rules is provided in John

B. Taylor and John C. Williams (2011), “Simple and Robust

Rules for Monetary Policy,” in Benjamin M. Friedman and

Michael Woodford, eds., Handbook of Monetary Economics,

vol.3B (Amsterdam: North-Holland), pp. 829–59. The same

volume of the Handbook of Monetary Economics also

discusses approaches to deriving policy rate prescriptions

other than through the use of simple rules.

2. The balanced-approach (shortfalls) rule responds

asymmetrically to unemployment rates above or below their

estimated longer-run value: When unemployment is above

that value, the policy rates are identical to those prescribed by

the balanced-approach rule, whereas when unemployment

is below that value, policy rates do not rise because of

further declines in the unemployment rate. As a result, the

prescription of the balanced-approach (shortfalls) rule has

been less restrictive than that of the balanced-approach rule

since the  rst quarter of 2022.

3. Implementations of simple rules often use the output

gap as a measure of resource slack in the economy. The rules

described in  gureA instead use the unemployment rate gap

because that gap better captures the FOMC’s statutory goal

to promote maximum employment. Movements in these

alternative measures of resource utilization tend to be highly

correlated. For more information, see the note associated with

 gureA.

4. The neutral real interest rate in the longer run (

) is

the level of the real federal funds rate that is expected to be

consistent, in the longer run, with maximum employment

and stable in ation. Like u

is determined largely by

nonmonetary factors. The  rst-difference rule shown in

 gureA does not require an estimate of

, a feature that is

touted by proponents of such rules as providing an element of

robustness. However, this rule has its own shortcomings. For

example, research suggests that this sort of rule often results

in greater volatility in employment and in ation than what

would be obtained under the Taylor(1993) and balanced-

approach rules.

(continued on next page)

52 PART 2: MONETARY POLICY

the federal funds rate were well above the prescriptions

observed before the pandemic, re ecting, in large

part, elevated in ation readings. Because in ation has

recently run notably below levels observed at its peak

in 2022, the policy rates prescribed by these rules have

now declined. The current prescriptions from these

rules are close to or below the current target range

for the federal funds rate, though higher than survey-

based estimates of the longer-run value of the federal

funds rate.

discussion in the Monetary Policy Report, where

cumulated

from the fourth quarter of 2020.

positive values as in ation picked up and labor market

conditions strengthened.

In 2022 and during the  rst

half of 2023, the prescriptions of the simple rules for

5. For the adjusted Taylor(1993) rule,

—the cumulative

sum of past deviations of the federal funds rate from the

prescriptions of the Taylor(1993) rule when that rule

prescribes setting the federal funds rate below an ELB of

12.5basis points—is positive in the third quarter of 2020,

one quarter after the prescription of the Taylor(1993) rule

falls below the ELB, through to the  rst quarter of 2022. This

approach is a slight adjustment from previous editions of this

First-dierence rule

Taylor (1993) rule

Balanced-approach rule

Federal funds rate

Balanced-approach (shortfalls) rule

Percent

2024202320222021202020192018

B. Historical federal funds rate prescriptions from simple policy rules

OTE

: The rules use historical values of core personal consumption expenditures ination, the unemployment rate, and, where applicable,

historical

values

of the midpoint of the target range for the federal funds rate. Quarterly projections of longer-run values for the federal funds rate,

the

unemployment

rate, and ination used in the computation of the rules’ prescriptions are interpolations to quarterly values of projections from

the

Survey

of Primary Dealers. The rules’ prescriptions are quarterly, and the federal funds rate data are the monthly average of the daily midpoint of

the

target range for the federal funds rate and extend through June 2024.

OURCE

: Federal Reserve Bank of New York, Survey of Primary Dealers; Federal Reserve Bank of St. Louis, Federal Reserve Economic Data

DFEDTARL and DFEDTARU; Federal Reserve Board sta estimates.

Adjusted Taylor (1993) rule

Monetary Policy Rules (continued)

In conjunction with the Federal Open

Market Committee (FOMC) meeting held on

June11–12, 2024, meeting participants

submitted their projections of the most likely

outcomes for real gross domestic product

(GDP) growth, the unemployment rate, and

ination for each year from 2024 to 2026

and over the longer run. Each participant’s

projections were based on information

available at the time of the meeting, together

with her or his assessment of appropriate

monetary policy—including a path for the

federal funds rate and its longer-run value—

and assumptions about other factors likely

to aect economic outcomes. The longer-

run projections represent each participant’s

assessment of the value to which each variable

would be expected to converge, over time,

under appropriate monetary policy and in the

absence of further shocks to the economy.

“Appropriate monetary policy” is dened as

the future path of policy that each participant

deems most likely to foster outcomes for

economic activity and ination that best

satisfy his or her individual interpretation of

the statutory mandate to promote maximum

employment and price stability.

Part 3

summary of economic Projections

The following material was released after the conclusion of the June11–12, 2024, meeting of the

Federal Open Market Committee.

Table 1. Economic projections of Federal Reserve Board members and Federal Reserve Bank presidents, under their

individual assumptions of projected appropriate monetary policy, June2024

Percent

Variable

Median

Central tendency

Range

2024 2025 2026

Longer

run

2024 2025 2026

Longer

run

2024 2025 2026

Longer

run

Change in real GDP .....

2.1 2.0 2.0 1.8 1.9–2.3 1.8–2.2 1.8–2.1 1.7–2.0 1.4–2.7 1.5–2.5

1.7–2.5

1.6–2.5

March projection ..... 2.1 2.0 2.0 1.8 2.0–2.4 1.9–2.3 1.8–2.1 1.7–2.0 1.3–2.7 1.7–2.5 1.7–2.5 1.6–2.5

Unemployment rate .....

4.0 4.2 4.1 4.2 4.0–4.1 3.9–4.2 3.9–4.3 3.9–4.3 3.8–4.4 3.8–4.3

3.8–4.3

3.5–4.5

March projection ..... 4.0 4.1 4.0 4.1 3.9–4.1 3.9–4.2 3.9–4.3 3.8–4.3 3.8–4.5 3.7–4.3 3.7–4.3 3.5–4.3

PCE ination ..........

2.6 2.3 2.0 2.0 2.5–2.9 2.2–2.4 2.0–2.1 2.0 2.5–3.0 2.2–2.5

2.0–2.3

2.0

March projection ..... 2.4 2.2 2.0 2.0 2.3–2.7 2.1–2.2 2.0–2.1 2.0 2.2–2.9 2.0–2.5 2.0–2.3 2.0

Core PCE ination

.....

2.8 2.3 2.0 2.8–3.0 2.3–2.4 2.0–2.1 2.7–3.2 2.2–2.6

2.0–2.3

March projection .....

2.6 2.2 2.0 2.5–2.8 2.1–2.3 2.0–2.1

2.4–3.0 2.0–2.6

2.0–2.3

Memo: Projected

appropriate policy path

Federal funds rate .......

5.1 4.1 3.1 2.8 4.9–5.4 3.9–4.4 2.9–3.6 2.5–3.5 4.9–5.4 2.9–5.4

2.4–4.9

2.4–3.8

March projection .....

4.6 3.9 3.1 2.6 4.6–5.1 3.4–4.1 2.6–3.4 2.5–3.1 4.4–5.4 2.6–5.4

2.4–4.9

2.4–3.8

N: Projections of change in real gross domestic product (GDP) and projections for both measures of ination are percent changes from the fourth quarter of the previous year to

the fourth quarter of the year indicated. PCE ination and core PCE ination are the percentage rates of change in, respectively, the price index for personal consumption expenditures

(PCE) and the price index for PCE excluding food and energy. Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year

indicated. Each participant’s projections are based on his or her assessment of appropriate monetary policy. Longer-run projections represent each participant’s assessment of the rate

to which each variable would be expected to converge under appropriate monetary policy and in the absence of further shocks to the economy. The projections for the federal funds

rate are the value of the midpoint of the projected appropriate target range for the federal funds rate or the projected appropriate target level for the federal funds rate at the end of the

specied calendar year or over the longer run. The March projections were made in conjunction with the meeting of the Federal Open Market Committee on March19–20, 2024. One

participant did not submit longer-run projections for the change in real GDP, the unemployment rate, or the federal funds rate in conjunction with the March19–20, 2024, meeting.

1. For each period, the median is the middle projection when the projections are arranged from lowest to highest. When the number of projections is even, the median is the average

of the two middle projections.

2. The central tendency excludes the three highest and three lowest projections for each variable in each year.

3. The range for a variable in a given year includes all participants’ projections, from lowest to highest, for that variable in that year.

4. Longer-run projections for core PCE ination are not collected.

54 PART 3: SUMMARY OF ECONOMIC PROJECTIONS

Figure 1. Medians, central tendencies, and ranges of economic projections, 2024–26 and over the longer run

: Denitions of variables and other explanations are in the notes to table 1. The data for the actual values

of the variables are annual.

−3

−2

−1

2019 2020 2021 2022 2023 2024 2025 2026

Median of projections

Central tendency of projections

Range of projections

Actual

Percent

Change in real GDP

Longer

run

2019 2020 20212022 2023 2024 2025 2026

Percent

Unemployment rate

Longer

run

2019 2020 20212022 2023 2024 2025 2026

Percent

PCE inflation

Longer

run

2019 2020 20212022 2023 2024 2025 2026

Percent

Core PCE inflation

Longer

run

MONETARY POLICY REPORT: JULY 2024 55

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

2024 2025 2026

Longer run

Percent

Figure 2. FOMC participants’ assessments of appropriate monetary policy: Midpoint of target range

or target level for the federal funds rate

N: Each shaded circle indicates the value (rounded to the nearest 1/8 percentage point) of an individual

participant’s judgment of the midpoint of the appropriate target range for the federal funds rate or the appropriate

target level for the federal funds rate at the end of the specied calendar year or over the longer run.

56 PART 3: SUMMARY OF ECONOMIC PROJECTIONS

1.0−

1.1

1.2−

1.3

1.4−

1.5

1.6−

1.7

1.8−

1.9

2.0−

2.1

2.2−

2.3

2.4−

2.5

2.6−

2.7

Percent range

June projections

March projections

Number of participants

2024

1.0−

1.1

1.2−

1.3

1.4−

1.5

1.6−

1.7

1.8−

1.9

2.0−

2.1

2.2−

2.3

2.4−

2.5

2.6−

2.7

Percent range

Number of participants

2025

1.0−

1.1

1.2−

1.3

1.4−

1.5

1.6−

1.7

1.8−

1.9

2.0−

2.1

2.2−

2.3

2.4−

2.5

2.6−

2.7

Percent range

Number of participants

2026

1.0−

1.1

1.2−

1.3

1.4−

1.5

1.6−

1.7

1.8−

1.9

2.0−

2.1

2.2−

2.3

2.4−

2.5

2.6−

2.7

Percent range

Number of participants

Longer run

Figure 3.A. Distribution of participants’ projections for the change in real GDP, 2024–26 and over the longer run

N: Denitions of variables and other explanations are in the notes to table 1.

MONETARY POLICY REPORT: JULY 2024 57

3.2−

3.3

3.4−

3.5

3.6−

3.7

3.8−

3.9

4.0−

4.1

4.2−

4.3

4.4−

4.5

Percent range

June projections

March projections

Number of participants

2024

3.2−

3.3

3.4−

3.5

3.6−

3.7

3.8−

3.9

4.0−

4.1

4.2−

4.3

4.4−

4.5

Percent range

Number of participants

2025

3.2−

3.3

3.4−

3.5

3.6−

3.7

3.8−

3.9

4.0−

4.1

4.2−

4.3

4.4−

4.5

Percent range

Number of participants

2026

3.2−

3.3

3.4−

3.5

3.6−

3.7

3.8−

3.9

4.0−

4.1

4.2−

4.3

4.4−

4.5

Percent range

Number of participants

Longer run

Figure 3.B. Distribution of participants’ projections for the unemployment rate, 2024–26 and over the longer run

N: Denitions of variables and other explanations are in the notes to table 1.

58 PART 3: SUMMARY OF ECONOMIC PROJECTIONS

1.7−

1.8

1.9−

2.0

2.1−

2.2

2.3−

2.4

2.5−

2.6

2.7−

2.8

2.9−

3.0

Percent range

June projections

March projections

Number of participants

2024

1.7−

1.8

1.9−

2.0

2.1−

2.2

2.3−

2.4

2.5−

2.6

2.7−

2.8

2.9−

3.0

Percent range

Number of participants

2025

1.7−

1.8

1.9−

2.0

2.1−

2.2

2.3−

2.4

2.5−

2.6

2.7−

2.8

2.9−

3.0

Percent range

Number of participants

2026

1.7−

1.8

1.9−

2.0

2.1−

2.2

2.3−

2.4

2.5−

2.6

2.7−

2.8

2.9−

3.0

Percent range

Number of participants

Longer run

Figure 3.C. Distribution of participants’ projections for PCE ination, 2024–26 and over the longer run

N: Denitions of variables and other explanations are in the notes to table 1.

MONETARY POLICY REPORT: JULY 2024 59

1.7−

1.8

1.9−

2.0

2.1−

2.2

2.3−

2.4

2.5−

2.6

2.7−

2.8

2.9−

3.0

3.1−

3.2

Percent range

June projections

March projections

Number of participants

2024

1.7−

1.8

1.9−

2.0

2.1−

2.2

2.3−

2.4

2.5−

2.6

2.7−

2.8

2.9−

3.0

3.1−

3.2

Percent range

Number of participants

2025

1.7−

1.8

1.9−

2.0

2.1−

2.2

2.3−

2.4

2.5−

2.6

2.7−

2.8

2.9−

3.0

3.1−

3.2

Percent range

Number of participants

2026

Figure 3.D. Distribution of participants’ projections for core PCE ination, 2024–26

N: Denitions of variables and other explanations are in the notes to table 1.

60 PART 3: SUMMARY OF ECONOMIC PROJECTIONS

2.13−

2.37

2.38−

2.62

2.63−

2.87

2.88−

3.12

3.13−

3.37

3.38−

3.62

3.63−

3.87

3.88−

4.12

4.13−

4.37

4.38−

4.62

4.63−

4.87

4.88−

5.12

5.13−

5.37

5.38−

5.62

Percent range

June projections

March projections

Number of participants

2024

2.13−

2.37

2.38−

2.62

2.63−

2.87

2.88−

3.12

3.13−

3.37

3.38−

3.62

3.63−

3.87

3.88−

4.12

4.13−

4.37

4.38−

4.62

4.63−

4.87

4.88−

5.12

5.13−

5.37

5.38−

5.62

Percent range

Number of participants

2025

2.13−

2.37

2.38−

2.62

2.63−

2.87

2.88−

3.12

3.13−

3.37

3.38−

3.62

3.63−

3.87

3.88−

4.12

4.13−

4.37

4.38−

4.62

4.63−

4.87

4.88−

5.12

5.13−

5.37

5.38−

5.62

Percent range

Number of participants

2026

2.13−

2.37

2.38−

2.62

2.63−

2.87

2.88−

3.12

3.13−

3.37

3.38−

3.62

3.63−

3.87

3.88−

4.12

4.13−

4.37

4.38−

4.62

4.63−

4.87

4.88−

5.12

5.13−

5.37

5.38−

5.62

Percent range

Number of participants

Longer run

Figure 3.E. Distribution of participants’ judgments of the midpoint of the appropriate target range for the

federal funds rate or the appropriate target level for the federal funds rate, 2024–26 and over the longer run

N: Denitions of variables and other explanations are in the notes to table 1.

MONETARY POLICY REPORT: JULY 2024 61

Median projection and condence interval based on historical forecast errors

−3

−2

−1

2019 2020 2021 2022 2023 202420252026

Median of projections

70% confidence interval

Actual

Percent

Change in real GDP

FOMC participants’ assessmentsof uncertainty and risksaround their economic projections

Lower Broadly

similar

Higher

June projections

March projections

Number of participants

Uncertainty about GDP growth

Weighted to

downside

Broadly

balanced

Weighted to

upside

June projections

March projections

Number of participants

Risks to GDP growth

Figure 4.A. Uncertainty and risks in projections of GDP growth

N: The blue and red lines in the top panel show actual values and median projected values, respectively, of the

percent change in real gross domestic product (GDP) from the fourth quarter of the previous year to the fourth quarter of

the year indicated. The condence interval around the median projected values is assumed to be symmetric and is based on

root mean squared errors of various private and government forecasts made over the previous 20 years; more information

about these data is available in table 2. Because current conditions may dier from those that prevailed, on average, over

the previous 20 years, the width and shape of the condence interval estimated on the basis of the historical forecast errors

may not reect FOMC participants’ current assessments of the uncertainty and risks around their projections; these

current assessments are summarized in the lower panels. Generally speaking, participants who judge the uncertainty about

their projections as “broadly similar” to the average levels of the past 20 years would view the width of the condence

interval shown in the historical fan chart as largely consistent with their assessments of the uncertainty about their

projections. Likewise, participants who judge the risks to their projections as “broadly balanced” would view the

condence interval around their projections as app

roximately symmetric. For denitions of uncertainty and risks in

economic projections, see the box “Forecast Uncertainty.”

62 PART 3: SUMMARY OF ECONOMIC PROJECTIONS

2019 2020 2021 2022 2023 2024 2025 2026

Median of projections

70% confidence interval

Actual

Percent

Unemployment rate

Median projection and condence interval based on historical forecast errors

FOMC participants’ assessmentsof uncertainty and risksaround their economic projections

Lower Broadly

similar

Higher

June projections

March projections

Number of participants

Uncertainty about the unemployment rate

Weighted to

downside

Broadly

balanced

Weighted to

upside

June projections

March projections

Number of participants

Risks to the unemployment rate

Figure 4.B. Uncertainty and risks in projections of the unemployment rate

N: The blue and red lines in the top panel show actual values and median projected values, respectively, of

the average civilian unemployment rate in the fourth quarter of the year indicated. The condence interval around

the median projected values is assumed to be symmetric and is based on root mean squared errors of various private

and government forecasts made over the previous 20 years; more information about these data is available in table 2.

Because current conditions may dier from those that prevailed, on average, over the previous 20 years, the width

and shape of the condence interval estimated on the basis of the historical forecast errors may not reect FOMC

participants’ current assessments of the uncertainty and risks around their projections; these current assessments are

summarized in the lower panels. Generally speaking, participants who judge the uncertainty about their projections

as “broadly similar” to the average levels of the past 20 years would view the width of the condence interval shown

in the historical fan chart as largely consistent with their assessments of the uncertainty about their projections.

Likewise, participants who judge the risks to their projections as “broadly balanced” would view the condence

interval around their projections as approximately symmetric. For denitions of uncertainty and risks in economic

projections, see the box “Forecast Uncertainty.”

MONETARY POLICY REPORT: JULY 2024 63

2019 2020 2021 2022 2023 2024 2025 2026

Median of projections

70% confidence interval

Actual

Percent

PCE inflation

Median projection and condence interval based on historical forecast errors

FOMC participants’ assessmentsof uncertainty and risksaround their economic projections

Lower Broadly

similar

Higher

June projections

March projections

Number of participants

Uncertainty about PCE inflation

Weighted to

downside

Broadly

balanced

Weighted to

upside

June projections

March projections

Number of participants

Risks to PCE inflation

Lower Broadly

similar

Higher

June projections

March projections

Number of participants

Uncertainty about core PCE inflation

Weighted to

downside

Broadly

balanced

Weighted to

upside

June projections

March projections

Number of participants

Risks to core PCE inflation

Figure 4.C. Uncertainty and risks in projections of PCE ination

N: The blue and red lines in the top panel show actual values and median projected values, respectively,

of the percent change in the price index for personal consumption expenditures (PCE) from the fourth quarter of

the previous year to the fourth quarter of the year indicated. The condence interval around the median projected

values is assumed to be symmetric and is based on root mean squared errors of various private and government

forecasts made over the previous 20 years; more information about these data is available in table 2. Because current

conditions may dier from those that prevailed, on average, over the previous 20 years, the width and shape of the

condence interval estimated on the basis of the historical forecast errors may not reect FOMC participants’ current

assessments of the uncertainty and risks around their projections; these current assessments are summarized in the

lower panels. Generally speaking, participants who judge the uncertainty about their projections as “broadly similar”

to the average levels of the past 20 years would view the width of the condence interval shown in the historical fan

chart as largely consistent with their assessments of the uncertainty about their projections. Likewise, participants

who judge the risks to their projections as “broadly balanced” would view the condence interval around their

projections as approximately symmetric. For denitions of uncertainty and risks in economic projections, see the box

“Forecast Uncertainty.”

64 PART 3: SUMMARY OF ECONOMIC PROJECTIONS

−1.00

−0.75

−0.50

−0.25

0.00

0.25

0.50

0.75

1.00

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Diffusion index

Change in real GDP

−1.00

−0.75

−0.50

−0.25

0.00

0.25

0.50

0.75

1.00

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Diffusion index

Unemployment rate

−1.00

−0.75

−0.50

−0.25

0.00

0.25

0.50

0.75

1.00

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Diffusion index

PCE inflation

−1.00

−0.75

−0.50

−0.25

0.00

0.25

0.50

0.75

1.00

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Diffusion index

Core PCE inflation

Figure 4.D. Diusion indexes of participants’ uncertainty assessments

N: For each SEP, participants provided responses to the question “Please indicate your judgment of the

uncertainty attached to your projections relative to the levels of uncertainty over the past 20 years.” Each point

in the diusion indexes represents the number of participants who responded “Higher” minus the number who

responded “Lower,” divided by the total number of participants. Figure excludes March 2020 when no projections

were submitted.

MONETARY POLICY REPORT: JULY 2024 65

Figure 4.E. Diusion indexes of participants’ risk weightings

N: For each SEP, participants provided responses to the question “Please indicate your judgment of the risk

weighting around your projections.” Each point in the diusion indexes represents the number of participants who

responded “Weighted to the Upside” minus the number who responded “Weighted to the Downside,” divided by the

total number of participants. Figure excludes March 2020 when no projections were submitted.

−1.00

−0.75

−0.50

−0.25

0.00

0.25

0.50

0.75

1.00

2007 2008 2009 2010 2011 2012 20132014 2015 2016 20172018 2019 2020 2021 2022 2023 2024

Diffusion index

Change in real GDP

−1.00

−0.75

−0.50

−0.25

0.00

0.25

0.50

0.75

1.00

2007 2008 2009 2010 2011 2012 20132014 2015 2016 20172018 2019 2020 2021 2022 2023 2024

Diffusion index

Unemployment rate

−1.00

−0.75

−0.50

−0.25

0.00

0.25

0.50

0.75

1.00

2007 2008 2009 2010 2011 2012 20132014 2015 2016 20172018 2019 2020 2021 2022 2023 2024

Diffusion index

PCE inflation

−1.00

−0.75

−0.50

−0.25

0.00

0.25

0.50

0.75

1.00

2007 2008 2009 2010 2011 2012 20132014 2015 2016 20172018 2019 2020 2021 2022 2023 2024

Diffusion index

Core PCE inflation

66 PART 3: SUMMARY OF ECONOMIC PROJECTIONS

2019 2020 2021 2022 2023 2024 2025 2026

Midpoint of target range

Median of projections

70% confidence interval*

Actual

Percent

Federal funds rate

Figure 5. Uncertainty and risks in projections of the federal funds rate

: The blue and red lines are based on actual values and median projected values, respectively, of the

mmittee’s target for the federal funds rate at the end of the year indicated. The actual values are the midpoint of

e target range; the median projected values are based on either the midpoint of the target range or the target level.

e condence interval around the median projected values is based on root mean squared errors of various private

d government forecasts made over the previous 20 years. The condence interval is not strictly consistent with the

ojections for the federal funds rate, primarily because these projections are not forecasts of the likeliest outcomes

r the federal funds rate, but rather projections of participants’ individual assessments of appropriate monetary

licy. Still, historical forecast errors provide a broad sense of the uncertainty around the future path of the federal

nds rate generated by the uncertainty about the macroeconomic variables as well as additional adjustments to

mone

tary policy that may be appropriate to oset the eects of shocks to the economy.

he condence interval is assumed to be symmetric except when it is truncated at zero - the bottom of the lowest

rget range for the federal funds rate that has been adopted in the past by the Committee. This truncation would

not b

e intended to indicate the likelihood of the use of negative interest rates to provide additional monetary policy

commodation if doing so was judged appropriate. In such situations, the Committee could also employ other tools,

cluding forward guidance and large-scale asset purchases, to provide additional accommodation. Because current

nditions may dier from those that prevailed, on average, over the previous 20 years, the width and shape of the

ndence interval estimated on the basis of the historical forecast errors may not reect FOMC participants’ current

assessme

nts of the uncertainty and risks around their projections.

* The condence interval is derived from forecasts of the average level of short-term interest rates in the fourth

arter of the year indicated; more information about these data is available in table 2. The shaded area encompasses

less than a 70 percent condence interval if the condence interval has been truncated at zero.

MONETARY POLICY REPORT: JULY 2024 67

Table 2. Average historical projection error ranges

Percentage points

Variable 2024 2025 2026

Change in real GDP

.........

± 1.7 ± 1.9 ± 2.2

Unemployment rate

.........

± 0.9 ± 1.4 ± 1.9

Total consumer prices

.......

± 1.0 ± 1.7 ± 1.4

Short-term interest rates

....

± 0.7 ± 1.9 ± 2.3

N: Error ranges shown are measured as plus or minus the root mean squared

error of projections for 2004 through 2023 that were released in the summer by

various private and government forecasters. As described in the box “Forecast

Uncertainty,” under certain assumptions, there is about a 70percent probability that

actual outcomes for real GDP, unemployment, consumer prices, and the federal funds

rate will be in ranges implied by the average size of projection errors made in the past.

For more information, see David Reifschneider and Peter Tulip (2017), “Gauging

the Uncertainty of the Economic Outlook Using Historical Forecasting Errors: The

Federal Reserve’s Approach,” Finance and Economics Discussion Series 2017-020

(Washington: Board of Governors of the Federal Reserve System, February), https://

dx.doi.org/10.17016/FEDS.2017.020.

1. Denitions of variables are in the general note to table1.

2. Measure is the overall consumer price index, the price measure that has been

most widely used in government and private economic forecasts. Projections are

percent changes on a fourth quarter to fourth quarter basis.

3. For Federal Reserve sta forecasts, measure is the federal funds rate. For other

forecasts, measure is the rate on 3-month Treasury bills. Projection errors are calculat-

ed using average levels, in percent, in the fourth quarter.

68 PART 3: SUMMARY OF ECONOMIC PROJECTIONS

reported in table2 would imply a probability of about

70percent that actual GDP would expand within a

range of 1.3 to 4.7percent in the current year, 1.1 to

4.9percent in the second year, and 0.8 to 5.2percent

in the third year. The corresponding 70percent

con dence intervals for overall in ation would be 1.0

to 3.0percent in the current year, 0.3 to 3.7percent

in the second year, and 0.6 to 3.4percent in the third

year. Figures 4.A through 4.C illustrate these con dence

bounds in “fan charts” that are symmetric and centered

on the medians of FOMC participants’ projections for

GDP growth, the unemployment rate, and in ation.

However, in some instances, the risks around the

projections may not be symmetric. In particular, the

unemployment rate cannot be negative; furthermore,

the risks around a particular projection might be tilted

to either the upside or the downside, in which case

the corresponding fan chart would be asymmetrically

positioned around the median projection.

Because current conditions may differ from those

that prevailed, on average, over history, participants

provide judgments as to whether the uncertainty

attached to their projections of each economic variable

is greater than, smaller than, or broadly similar to

typical levels of forecast uncertainty seen in the past

20years, as presented in table2 and re ected in the

widths of the con dence intervals shown in the top

panels of  gures 4.A through 4.C. Participants’ current

assessments of the uncertainty surrounding their

projections are summarized in the bottom-left panels

The economic projections provided by the members

of the Board of Governors and the presidents of

the Federal Reserve Banks inform discussions of

monetary policy among policymakers and can aid

public understanding of the basis for policy actions.

Considerable uncertainty attends these projections,

however. The economic and statistical models and

relationships used to help produce economic forecasts

are necessarily imperfect descriptions of the real world,

and the future path of the economy can be affected

by myriad unforeseen developments and events. Thus,

in setting the stance of monetary policy, participants

consider not only what appears to be the most likely

economic outcome as embodied in their projections,

but also the range of alternative possibilities, the

likelihood of their occurring, and the potential costs to

the economy should they occur.

Table 2 summarizes the average historical accuracy

of a range of forecasts, including those reported in

past Monetary Policy Reports and those prepared

by the Federal Reserve Board’s staff in advance of

meetings of the Federal Open Market Committee

(FOMC). The projection error ranges shown in the

table illustrate the considerable uncertainty associated

with economic forecasts. For example, suppose a

participant projects that real gross domestic product

(GDP) and total consumer prices will rise steadily at

annual rates of, respectively, 3percent and 2percent.

If the uncertainty attending those projections is similar

to that experienced in the past and the risks around

the projections are broadly balanced, the numbers

Forecast Uncertainty

(continued)

MONETARY POLICY REPORT: JULY 2024 69

assessments of appropriate monetary policy and are

on an end-of-year basis. However, the forecast errors

should provide a sense of the uncertainty around the

future path of the federal funds rate generated by the

uncertainty about the macroeconomic variables as

well as additional adjustments to monetary policy that

would be appropriate to offset the effects of shocks to

theeconomy.

If at some point in the future the con dence interval

around the federal funds rate were to extend below

zero, it would be truncated at zero for purposes of

the fan chart shown in  gure5; zero is the bottom of

the lowest target range for the federal funds rate that

has been adopted by the Committee in the past. This

approach to the construction of the federal funds rate

fan chart would be merely a convention; it would

not have any implications for possible future policy

decisions regarding the use of negative interest rates to

provide additional monetary policy accommodation

if doing so were appropriate. In such situations, the

Committee could also employ other tools, including

forward guidance and asset purchases, to provide

additional accommodation.

While  gures 4.A through 4.C provide information

on the uncertainty around the economic projections,

 gure1 provides information on the range of views

across FOMC participants. A comparison of  gure1

with  gures 4.A through 4.C shows that the dispersion

of the projections across participants is much smaller

than the average forecast errors over the past 20years.

of those  gures. Participants also provide judgments as

to whether the risks to their projections are weighted

to the upside, are weighted to the downside, or

are broadly balanced. That is, while the symmetric

historical fan charts shown in the top panels of

 gures 4.A through 4.C imply that the risks to

participants’ projections are balanced, participants may

judge that there is a greater risk that a given variable

will be above rather than below their projections. These

judgments are summarized in the lower-right panels of

 gures 4.A through 4.C.

As with real activity and in ation, the outlook

for the future path of the federal funds rate is subject

to considerable uncertainty. This uncertainty arises

primarily because each participant’s assessment of

the appropriate stance of monetary policy depends

importantly on the evolution of real activity and

in ation over time. If economic conditions evolve

in an unexpected manner, then assessments of the

appropriate setting of the federal funds rate would

change from that point forward. The  nal line in

table2 shows the error ranges for forecasts of short-

term interest rates. They suggest that the historical

con dence intervals associated with projections

of the federal funds rate are quite wide. It should

be noted, however, that these con dence intervals

are not strictly consistent with the projections for

the federal funds rate, as these projections are not

forecasts of the most likely quarterly outcomes but

rather are projections of participants’ individual

AFE advanced foreign economy

AI articial intelligence

BOJ Bank of Japan

BTFP Bank Term Funding Program

CBO Congressional Budget Oce

CES Current Employment Statistics

COVID-19 coronavirus disease 2019

CPI consumer price index

CRE commercial real estate

DI depository institution

EFFR eective federal funds rate

ELB eective lower bound

EME emerging market economy

EPOP ratio employment-to-population ratio

FOMC Federal Open Market Committee; also, the Committee

GDI gross domestic income

GDP gross domestic product

JOLTS Job Openings and Labor Turnover Survey

LFPR labor force participation rate

MBS mortgage-backed securities

MMF money market fund

NFIB National Federation of Independent Business

OER owners’ equivalent rent

ON RRP overnight reverse repurchase agreement

OPEC Organization of the Petroleum Exporting Countries

PCE personal consumption expenditures

QCEW Quarterly Census of Employment and Wages

SEP Summary of Economic Projections

SLOOS Senior Loan Ocer Opinion Survey on Bank Lending Practices

SOMA System Open Market Account

S&P Standard & Poor’s

VIX implied volatility for the S&P 500 index

abbreviations

Board of Governors of the Federal Reserve System

For use at 11:00 a.m. EDT

July 5, 2024

Monetary Policy rePort

July 5, 2024