March 16, 2016
JYJanet L. YellenMarch 16, 2016 FOMC Press Conference
- The median federal funds rate projection was lowered by about half a percentage point for 2016 and 2017 compared with December, with the median longer-run normal rate also revised down.
- The neutral nominal federal funds rate is currently low by historical standards and is expected to rise only gradually over time, partly due to persistent headwinds like subdued household formation and meager productivity growth.
- The FOMC does not seek to engineer an overshoot of inflation to compensate for past undershoots, and its tolerance for under- and overshoots is symmetric around the 2 percent objective.
- Recent inflation readings have been influenced by unusually high prices in volatile categories, and the chair had not yet concluded that a lasting uptick in core inflation has been seen.
- Global growth forecasts have been slightly downgraded by international agencies, with negative fourth-quarter growth in Japan and recent indicators in the euro area cited as specific concerns.
From the opening statement
Press conference
CHAIR YELLEN. Good afternoon. Today the Federal Open Market Committee decided to maintain the target range for the federal funds rate at ¼ to ½ percent. Our decision to keep this accommodative policy stance reflects both our assessment of the economic outlook and the risks associated with that outlook. The Committee’s baseline expectations for economic activity, the labor market, and inflation have not changed much since December: With appropriate monetary policy, we continue to expect moderate economic growth, further labor market improvement, and a return of inflation to our 2 percent objective in two to three years. However, global economic and financial developments continue to pose risks. Against this backdrop, the Committee judged it prudent to maintain the current policy stance at today’s meeting. I will come back to our policy decision momentarily, but first let me review recent economic developments and the outlook.
The labor market continues to strengthen. Over the most recent three months, job gains averaged nearly 230,000 per month, similar to the pace experienced over the past year. The unemployment rate was 4.9 percent in the first two months of the year, about in line with the median of FOMC participants’ estimates of its longer-run normal level. A broader measure of unemployment that includes individuals who want and are available to work but have not actively searched recently and people who are working part time but would rather work full time has continued to improve. Of note, the labor force participation rate has turned up noticeably since the fall, with more people working or actively looking for work as the prospects for finding jobs have improved. But there is still room for improvement: Involuntary part-time employment remains somewhat elevated, and wage growth has yet to show a sustained pickup.
The improvement in employment conditions so far this year has occurred as economic growth appears to have picked up from the modest pace seen in the fourth quarter of last year. Household spending is expanding at a moderate rate, supported by continued job gains and increases in inflation-adjusted incomes. In contrast, business investment has been weak, in part reflecting further reductions in oil drilling as a result of low oil prices. Net exports also remain soft as a consequence of subdued foreign growth and the earlier appreciation of the dollar. Looking ahead, the Committee expects that, with gradual adjustments in the stance of monetary policy, economic activity will continue to expand at a moderate pace and labor market indicators will continue to strengthen.