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posted on 14 December 2016

14 December 2016 FOMC Meeting Statement: Federal Funds Rate Raised (Finally)

Econintersect: The Federal Open Market Committee (FOMC) - the board of directors of the Federal Reserve again did raised the federal funds rate. There were no dissenting votes. A summary of how the members viewed the economy:

.... economic activity has been expanding at a moderate pace since mid-year. Job gains have been solid in recent months and the unemployment rate has declined ...

Analyst Opinion of the FOMC Meeting Minutes

There was no dissenting votes this meeting. The funny thing is that little changed economically between the last FOMC meeting and this meeting - yet the FOMC raised the rate this meeting.

The Federal Funds rate was raised a quarter point. which is what the market expected 0.50 % to 0.75 %.

02 November Statement

14 December Statement

Information received since the Federal Open Market Committee met in September 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. Household spending has been rising moderately but business fixed investment has remained soft. Inflation has increased somewhat since earlier this year but is still 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 have moved up but remain low; most survey-based measures of longer-term inflation expectations are little changed, on balance, in recent months. Information received since the Federal Open Market Committee met in November indicates that the labor market has continued to strengthen and that economic activity has been expanding at a moderate pace since mid-year. Job gains have been solid in recent months and the unemployment rate has declined. Household spending has been rising moderately but business fixed investment has remained soft. Inflation has increased since earlier this year but is still 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 have moved up considerably but still are 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 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. 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 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 continued to strengthen but decided, for the time being, to wait for some 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 view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 1/2 to 3/4 percent. The stance of monetary policy remains accommodative, thereby supporting some further strengthening 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. 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. 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; Eric Rosengren; and Daniel K. Tarullo. Voting against the action were: Esther L. George and Loretta J. Mester, each of whom preferred at this meeting to raise the target range for the federal funds rate to 1/2 to 3/4 percent. Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; James Bullard; Stanley Fischer; Esther L. George; Loretta J. Mester; Jerome H. Powell; Eric Rosengren; and Daniel K. Tarullo.

Advance release of table 1 of the Summary of Economic Projections to be released with the FOMC minutes

Percent

Variable Median1 Central tendency2 Range3
2016 2017 2018 2019 Longer run 2016 2017 2018 2019 Longer run 2016 2017 2018 2019 Longer run
Change in real GDP 1.9 2.1 2.0 1.9 1.8 1.8 - 1.9 1.9 - 2.3 1.8 - 2.2 1.8 - 2.0 1.8 - 2.0 1.8 - 2.0 1.7 - 2.4 1.7 - 2.3 1.5 - 2.2 1.6 - 2.2
September projection 1.8 2.0 2.0 1.8 1.8 1.7 - 1.9 1.9 - 2.2 1.8 - 2.1 1.7 - 2.0 1.7 - 2.0 1.7 - 2.0 1.6 - 2.5 1.5 - 2.3 1.6 - 2.2 1.6 - 2.2
Unemployment rate 4.7 4.5 4.5 4.5 4.8 4.7 - 4.8 4.5 - 4.6 4.3 - 4.7 4.3 - 4.8 4.7 - 5.0 4.7 - 4.8 4.4 - 4.7 4.2 - 4.7 4.1 - 4.8 4.5 - 5.0
September projection 4.8 4.6 4.5 4.6 4.8 4.7 - 4.9 4.5 - 4.7 4.4 - 4.7 4.4 - 4.8 4.7 - 5.0 4.7 - 4.9 4.4 - 4.8 4.3 - 4.9 4.2 - 5.0 4.5 - 5.0
PCE inflation 1.5 1.9 2.0 2.0 2.0 1.5 1.7 - 2.0 1.9 - 2.0 2.0 - 2.1 2.0 1.5 - 1.6 1.7 - 2.0 1.8 - 2.2 1.8 - 2.2 2.0
September projection 1.3 1.9 2.0 2.0 2.0 1.2 - 1.4 1.7 - 1.9 1.8 - 2.0 1.9 - 2.0 2.0 1.1 - 1.7 1.5 - 2.0 1.8 - 2.0 1.8 - 2.1 2.0
Core PCE inflation4 1.7 1.8 2.0 2.0 1.7 - 1.8 1.8 - 1.9 1.9 - 2.0 2.0 1.6 - 1.8 1.7 - 2.0 1.8 - 2.2 1.8 - 2.2
September projection 1.7 1.8 2.0 2.0 1.6 - 1.8 1.7 - 1.9 1.9 - 2.0 2.0 1.5 - 2.0 1.6 - 2.0 1.8 - 2.0 1.8 - 2.1
Memo: Projected appropriate policy path
Federal funds rate 0.6 1.4 2.1 2.9 3.0 0.6 1.1 - 1.6 1.9 - 2.6 2.4 - 3.3 2.8 - 3.0 0.6 0.9 - 2.1 0.9 - 3.4 0.9 - 3.9 2.5 - 3.8
September projection 0.6 1.1 1.9 2.6 2.9 0.6 - 0.9 1.1 - 1.8 1.9 - 2.8 2.4 - 3.0 2.8 - 3.0 0.4 - 1.1 0.6 - 2.1 0.6 - 3.1 0.6 - 3.8 2.5 - 3.8

Note: Projections of change in real gross domestic product (GDP) and projections for both measures of inflation are percent changes from the fourth quarter of the previous year to the fourth quarter of the year indicated. PCE inflation and core PCE inflation 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 specified calendar year or over the longer run. The September projections were made in conjunction with the meeting of the Federal Open Market Committee on September 20-21, 2016. 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 September 20-21, 2016, meeting, and one participant did not submit such projections in conjunction with the December 13-14, 2016, 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. Return to table

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

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

4. Longer-run projections for core PCE inflation are not collected. Return to table

Figure 1. Medians, central tendencies, and ranges of economic projections, 2016-19 and over the longer run

Medians, central tendencies, and ranges of economic projections for years 2016 through 2019 and over the longer run. Actual values for years 2011 through 2015.

Change in real GDP
Percent

2011 2012 2013 2014 2015 2016 2017 2018 2019 Longer run
Actual 1.7 1.3 2.7 2.5 1.9 - - - - -
Upper End of Range - - - - - 2.0 2.4 2.3 2.2 2.2
Upper End of Central Tendency - - - - - 1.9 2.3 2.2 2.0 2.0
Median - - - - - 1.9 2.1 2.0 1.9 1.8
Lower End of Central Tendency - - - - - 1.8 1.9 1.8 1.8 1.8
Lower End of Range - - - - - 1.8 1.7 1.7 1.5 1.6

Unemployment rate
Percent

2011 2012 2013 2014 2015 2016 2017 2018 2019 Longer run
Actual 8.7 7.8 7.0 5.7 5.0 - - - - -
Upper End of Range - - - - - 4.8 4.7 4.7 4.8 5.0
Upper End of Central Tendency - - - - - 4.8 4.6 4.7 4.8 5.0
Median - - - - - 4.7 4.5 4.5 4.5 4.8
Lower End of Central Tendency - - - - - 4.7 4.5 4.3 4.3 4.7
Lower End of Range - - - - - 4.7 4.4 4.2 4.1 4.5

PCE inflation
Percent

2011 2012 2013 2014 2015 2016 2017 2018 2019 Longer run
Actual 2.7 1.8 1.2 1.2 0.4 - - - - -
Upper End of Range - - - - - 1.6 2.0 2.2 2.2 2.0
Upper End of Central Tendency - - - - - 1.5 2.0 2.0 2.1 2.0
Median - - - - - 1.5 1.9 2.0 2.0 2.0
Lower End of Central Tendency - - - - - 1.5 1.7 1.9 2.0 2.0
Lower End of Range - - - - - 1.5 1.7 1.8 1.8 2.0

Note: Definitions of variables and other explanations are in the notes to the projections table. The data for the actual values of the variables are annual.

Figure 2. FOMC participants' assessments of appropriate monetary policy: Midpoint of target range or target level for the federal funds rate

Number of participants with projected midpoint of target range or target level

Midpoint of target range
or target level (Percent)
2016 2017 2018 2019 Longer run
0.125
0.250
0.375
0.500
0.625 17
0.750
0.875 2 1 1
1.000
1.125 4
1.250
1.375 6
1.500
1.625 3 1
1.750 1
1.875 5
2.000
2.125 1 3 1
2.250
2.375 2 2
2.500 1
2.625 2 3
2.750 6
2.875 2
3.000 1 2 7
3.125 2
3.250 1 2
3.375 1
3.500 1
3.625 1
3.750 1
3.875 1

Note: 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 specified calendar year or over the longer run. One participant did not submit longer-run projections for the federal funds rate.

Steven Hansen

Source: All minutes and statement index / calendar for the Federal Reserve



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