Fed Policy Report: Ongoing increases in fed funds rate target are necessary

Below are the key takeaways from the US Federal Reserve's semi-annual Monetary Policy Report published on Friday, per Reuters.

Key takeaways

"Financial conditions have tightened further since June and are significantly tighter than a year ago."

"Ongoing increases in the fed funds rate target are necessary."

"Strongly committed to getting inflation back to 2%."

"Business credit quality remains strong, but some indicators of future business defaults are somewhat elevated."

"Financial vulnerabilities remain moderate overall."

"Net negative income does not impede monetary policy work."

"Expecting to return to net positive income at some point."

"Market liquidity remained low in Treasury and other key markets versus pre-pandemic levels."

"Bringing inflation back to 2% likely requires period of below-trend growth, some softening of labor market conditions."

"Underlying momentum in the economy likely remains subdued."

"Valuation pressures in equity markets have increased modestly."

"For core services ex-housing sector, inflation remains elevated; prospects for it slowing may depend in part on an easing of tight labor market conditions."

"Core foreign inflation remains high and inflationary pressures are broad."

"Some signs of increased stress for lower-income households as near-prime, subprime delinquency rates have risen."

"Fed rate control toolkit effective at maintaining federal funds rate."

"Will adjust balance sheet drawdown process if there is a need to."

"Strong reverse repo takeup reflects market rates and investor caution."

"Labor market has remained extremely tight and there is a significant labor supply shortfall relative to the levels expected before the pandemic."

"Tight labor market conditions have largely erased pandemic-induced widening of employment gaps across demographic groups."

"Officials mindful of monetary policy rules, don’t use them to drive policy."

"Rate hikes have narrowed gap between policy rule settings and real-world level."

"Labor force participation rate is likely to remain well below its level from before the pandemic."

Market reaction

The US Dollar Index showed no immediate reaction to this publication and was last seen trading flat at 104.93.