Fed keeps rates unchanged; key takeaways from the FOMC meet

 

The United States Federal open market committee (FOMC) kept the policy rate unchanged but signalled it still expects one more increase by the end of the year despite a recent bout of low inflation. The Committee decided to maintain the target range for the federal funds rate at 1 to 1.25%, keeping in view the realized and expected labor market conditions and inflation. The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labor market conditions and a sustained return to 2% inflation.

The Committee seeks to foster maximum employment and price stability. The Committee continued to expect 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. Near-term risks to the economic outlook appear roughly balanced, but the Committee will be monitoring inflation developments closely.

Economic Activity has been rising

The labor market has continued to strengthen and that economic activity has been rising moderately so far this year. Job gains have been solid, on an average, since the beginning of the year, and the unemployment rate has stayed low. Household spending has been expanding at a moderate rate, and growth in business fixed investment has picked up in recent quarters.

Inflation below 2%
On a 12-month basis, overall inflation and the measure excluding food and energy prices have declined this year and are running below 2%. Market-based measures of inflation compensation remain low. The survey-based measures of longer-term inflation expectations are little changed.

Interest rate on hold

While 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% 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. The Committee will carefully monitor actual and expected inflation developments relative to its symmetric inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant 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.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s