Econintersect: The Federal Open Market Committee (FOMC) – the board of directors of the Federal Reserve again did NOT adjust the federal funds rate. The prime reason for NOT raising this rate:
…. pace of improvement in the labor market has slowed while growth in economic activity appears to have picked up. Although the unemployment rate has declined, job gains have diminished ...
The Federal Funds rate was unchanged at 0.25% to 0.50%. which is what the market expected. At the end of this post is the economic projections of the FOMC.
27 April Statement | 15 June Statement |
|---|---|
| Information received since the Federal Open Market Committee met in March indicates that labor market conditions have improved further even as growth in economic activity appears to have slowed. Growth in household spending has moderated, although households’ real income has risen at a solid rate and consumer sentiment remains high. Since the beginning of the year, the housing sector has improved further but business fixed investment and net exports have been soft. A range of recent indicators, including strong job gains, points to additional strengthening of the labor market. Inflation has continued to run below the Committee’s 2 percent longer-run objective, partly reflecting earlier declines in energy prices and falling prices of non-energy imports. Market-based measures of inflation compensation remain low; 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 April indicates that the pace of improvement in the labor market has slowed while growth in economic activity appears to have picked up. Although the unemployment rate has declined, job gains have diminished. Growth in household spending has strengthened. Since the beginning of the year, the housing sector has continued to improve and the drag from net exports appears to have lessened, but business fixed investment has been 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 declined; 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 currently expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market indicators will continue to strengthen. 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 declines in energy and import prices dissipate and the labor market strengthens further. 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 currently expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market indicators will strengthen. 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. 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 stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation. | Against this backdrop, the Committee decided to maintain the target range for the federal funds rate at 1/4 to 1/2 percent. 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. | 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; Loretta J. Mester; Jerome H. Powell; Eric Rosengren; and Daniel K. Tarullo. Voting against the action was Esther L. George, who 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. |
Here is the press conference presentation materials:
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 | Longer run | 2016 | 2017 | 2018 | Longer run | 2016 | 2017 | 2018 | Longer run | ||||
| Change in real GDP | 2.2 | 2.1 | 2.0 | 2.0 | 2.1 – 2.3 | 2.0 – 2.3 | 1.8 – 2.1 | 1.8 – 2.1 | 1.9 – 2.5 | 1.7 – 2.3 | 1.8 – 2.3 | 1.8 – 2.4 | |||
| December projection | 2.4 | 2.2 | 2.0 | 2.0 | 2.3 – 2.5 | 2.0 – 2.3 | 1.8 – 2.2 | 1.8 – 2.2 | 2.0 – 2.7 | 1.8 – 2.5 | 1.7 – 2.4 | 1.8 – 2.3 | |||
| Unemployment rate | 4.7 | 4.6 | 4.5 | 4.8 | 4.6 – 4.8 | 4.5 – 4.7 | 4.5 – 5.0 | 4.7 – 5.0 | 4.5 – 4.9 | 4.3 – 4.9 | 4.3 – 5.0 | 4.7 – 5.8 | |||
| December projection | 4.7 | 4.7 | 4.7 | 4.9 | 4.6 – 4.8 | 4.6 – 4.8 | 4.6 – 5.0 | 4.8 – 5.0 | 4.3 – 4.9 | 4.5 – 5.0 | 4.5 – 5.3 | 4.7 – 5.8 | |||
| PCE inflation | 1.2 | 1.9 | 2.0 | 2.0 | 1.0 – 1.6 | 1.7 – 2.0 | 1.9 – 2.0 | 2.0 | 1.0 – 1.6 | 1.6 – 2.0 | 1.8 – 2.0 | 2.0 | |||
| December projection | 1.6 | 1.9 | 2.0 | 2.0 | 1.2 – 1.7 | 1.8 – 2.0 | 1.9 – 2.0 | 2.0 | 1.2 – 2.1 | 1.7 – 2.0 | 1.7 – 2.1 | 2.0 | |||
| Core PCE inflation4 | 1.6 | 1.8 | 2.0 | 1.4 – 1.7 | 1.7 – 2.0 | 1.9 – 2.0 | 1.4 – 2.1 | 1.6 – 2.0 | 1.8 – 2.0 | ||||||
| December projection | 1.6 | 1.9 | 2.0 | 1.5 – 1.7 | 1.7 – 2.0 | 1.9 – 2.0 | 1.4 – 2.1 | 1.6 – 2.0 | 1.7 – 2.1 | ||||||
| Memo: Projected appropriate policy path | |||||||||||||||
| Federal funds rate | 0.9 | 1.9 | 3.0 | 3.3 | 0.9 – 1.4 | 1.6 – 2.4 | 2.5 – 3.3 | 3.0 – 3.5 | 0.6 – 1.4 | 1.6 – 2.8 | 2.1 – 3.9 | 3.0 – 4.0 | |||
| December projection | 1.4 | 2.4 | 3.3 | 3.5 | 0.9 – 1.4 | 1.9 – 3.0 | 2.9 – 3.5 | 3.3 – 3.5 | 0.9 – 2.1 | 1.9 – 3.4 | 2.1 – 3.9 | 3.0 – 4.0 | |||
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 December projections were made in conjunction with the meeting of the Federal Open Market Committee on December 15-16, 2015.
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, 2016-18 and over the longer run
Medians, central tendencies, and ranges of economic projections for years 2016 through 2018 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 | Longer run | |
|---|---|---|---|---|---|---|---|---|---|
| Actual | 1.7 | 1.3 | 2.5 | 2.5 | 1.9 | – | – | – | – |
| Upper End of Range | – | – | – | – | – | 2.5 | 2.3 | 2.3 | 2.4 |
| Upper End of Central Tendency | – | – | – | – | – | 2.3 | 2.3 | 2.1 | 2.1 |
| Median | – | – | – | – | – | 2.2 | 2.1 | 2.0 | 2.0 |
| Lower End of Central Tendency | – | – | – | – | – | 2.1 | 2.0 | 1.8 | 1.8 |
| Lower End of Range | – | – | – | – | – | 1.9 | 1.7 | 1.8 | 1.8 |
Unemployment rate
Percent
| 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | Longer run | |
|---|---|---|---|---|---|---|---|---|---|
| Actual | 8.7 | 7.8 | 7.0 | 5.7 | 5.0 | – | – | – | – |
| Upper End of Range | – | – | – | – | – | 4.9 | 4.9 | 5.0 | 5.8 |
| Upper End of Central Tendency | – | – | – | – | – | 4.8 | 4.7 | 5.0 | 5.0 |
| Median | – | – | – | – | – | 4.7 | 4.6 | 4.5 | 4.8 |
| Lower End of Central Tendency | – | – | – | – | – | 4.6 | 4.5 | 4.5 | 4.7 |
| Lower End of Range | – | – | – | – | – | 4.5 | 4.3 | 4.3 | 4.7 |
PCE inflation
Percent
| 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | Longer run | |
|---|---|---|---|---|---|---|---|---|---|
| Actual | 2.7 | 1.8 | 1.2 | 1.1 | 0.5 | – | – | – | – |
| Upper End of Range | – | – | – | – | – | 1.6 | 2.0 | 2.0 | 2.0 |
| Upper End of Central Tendency | – | – | – | – | – | 1.6 | 2.0 | 2.0 | 2.0 |
| Median | – | – | – | – | – | 1.2 | 1.9 | 2.0 | 2.0 |
| Lower End of Central Tendency | – | – | – | – | – | 1.0 | 1.7 | 1.9 | 2.0 |
| Lower End of Range | – | – | – | – | – | 1.0 | 1.6 | 1.8 | 2.0 |
Note: Definitions of variables are in the general note 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 | Longer run |
|---|---|---|---|---|
| 0.125 | ||||
| 0.250 | ||||
| 0.375 | ||||
| 0.500 | ||||
| 0.625 | 1 | |||
| 0.750 | ||||
| 0.875 | 9 | |||
| 1.000 | ||||
| 1.125 | 3 | |||
| 1.250 | ||||
| 1.375 | 4 | |||
| 1.500 | ||||
| 1.625 | 4 | |||
| 1.750 | ||||
| 1.875 | 5 | |||
| 2.000 | ||||
| 2.125 | 3 | 1 | ||
| 2.250 | ||||
| 2.375 | 3 | 2 | ||
| 2.500 | 1 | |||
| 2.625 | 1 | 1 | ||
| 2.750 | 1 | |||
| 2.875 | 3 | |||
| 3.000 | 1 | 5 | ||
| 3.125 | 3 | |||
| 3.250 | 2 | 7 | ||
| 3.375 | 2 | |||
| 3.500 | 2 | |||
| 3.625 | ||||
| 3.750 | 2 | |||
| 3.875 | 1 | |||
| 4.000 | 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.
Source: All minutes and statement index / calendar for the Federal Reserve
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