A cautious Fed leaves rates unchanged:
Fed statement (Wednesday, September 21, 2016):
“Information
received since the Federal Open Market Committee met in July indicates that the
labor market has continued to strengthen and growth of economic activity has
picked up from the modest pace seen in the first half of this year. Although
the unemployment rate is little changed in recent months, job gains have been
solid, on average. Household spending has been growing strongly but business
fixed investment has remained soft. Inflation has continued to run below the
Committee's 2 percent longer-run objective, partly reflecting earlier declines
in energy prices and in prices of non-energy imports. Market-based measures of
inflation compensation remain low; most survey-based measures of longer-term
inflation expectations are little changed, on balance, in recent months.
Consistent with its
statutory mandate, the Committee seeks to foster maximum employment and price
stability. The Committee expects that, with gradual adjustments in the stance
of monetary policy, economic activity will expand at a moderate pace and labor
market conditions will strengthen somewhat further. Inflation is expected to
remain low in the near term, in part because of earlier declines in energy
prices, but to rise to 2 percent over the medium term as the transitory effects
of past declines in energy and import prices dissipate and the labor market
strengthens further. Near-term risks to the economic outlook appear roughly
balanced. The Committee continues to closely monitor inflation indicators and
global economic and financial developments.
Against this
backdrop, the Committee decided to maintain the target range for the federal
funds rate at 1/4 to 1/2 percent. The Committee judges that the case for an
increase in the federal funds rate has strengthened but decided, for the time
being, to wait for further evidence of continued progress toward its
objectives. The stance of monetary policy remains accommodative, thereby
supporting further improvement in labor market conditions and a return to 2
percent inflation.
In determining the
timing and size of future adjustments to the target range for the federal funds
rate, the Committee will assess realized and expected economic conditions
relative to its objectives of maximum employment and 2 percent inflation. This
assessment will take into account a wide range of information, including
measures of labor market conditions, indicators of inflation pressures and
inflation expectations, and readings on financial and international
developments. In light of the current shortfall of inflation from 2 percent,
the Committee will carefully monitor actual and expected progress toward its
inflation goal. The Committee expects that economic conditions will evolve in a
manner that will warrant only gradual increases in the federal funds rate; the
federal funds rate is likely to remain, for some time, below levels that are
expected to prevail in the longer run. However, the actual path of the federal
funds rate will depend on the economic outlook as informed by incoming data.
The Committee is
maintaining its existing policy of reinvesting principal payments from its
holdings of agency debt and agency mortgage-backed securities in agency
mortgage-backed securities and of rolling over maturing Treasury securities at
auction, and it anticipates doing so until normalization of the level of the
federal funds rate is well under way. This policy, by keeping the Committee's
holdings of longer-term securities at sizable levels, should help maintain
accommodative financial conditions.
Voting for the FOMC
monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice
Chairman; Lael Brainard; James Bullard; Stanley Fischer; Jerome H. Powell; and
Daniel K. Tarullo. Voting against the action were: Esther L. George, Loretta J.
Mester, and Eric Rosengren, each of whom preferred at this meeting to raise the
target range for the federal funds rate to 1/2 to 3/4 percent.”
