June 15, 2016 FOMC Press Conference

Press conference

CHAIR YELLEN. Good afternoon. Today, the Federal Open Market Committee maintained the target range for the federal funds rate at ¼ to ½ percent. This accommodative policy should support further progress toward our statutory objectives of maximum employment and price stability. Based on the economic outlook, the Committee continues to anticipate that gradual increases in the federal funds rate over time are likely to be consistent with achieving and maintaining our objectives. However, recent economic indicators have been mixed, suggesting that our cautious approach to adjusting monetary policy remains appropriate. As always, our policy is not on a preset course, and if the economic outlook shifts, the appropriate path of policy will shift correspondingly. I will come back to our policy decision, but first I will review recent economic developments and the outlook.

Economic growth was relatively weak late last year and early this year. Some of the factors weighing on growth were expected. For example, exports have been soft, reflecting subdued foreign demand and the earlier appreciation of the dollar. Also, activity in the energy sector has obviously been hard hit by the steep drop in oil prices since mid-2014. But the slowdown in other parts of the economy was not expected. In particular, business investment outside of energy was particularly weak during the winter and appears to have remained so into the spring. In addition, growth in household spending slowed noticeably early in the year despite solid increases in household income as well as relatively high levels of consumer sentiment and wealth. Fortunately, the first-quarter slowdown in household spending appears to have been temporary; indicators for the second quarter have so far pointed to a sizable rebound. This recovery is a key factor supporting the Committee’s expectation that overall economic activity will expand at a moderate pace over the next few years.

Despite lackluster economic growth, the job market continued to improve early in the year. During the first quarter, job gains averaged nearly 200,000 per month, just a bit slower than last year’s pace. And the unemployment rate held near 5 percent even though notabl y more people were actively looking for work. However, more recently the pace of improvement in the labor market appears to have slowed markedly. Job gains in April and May are estimated to have averaged only about 80,000 per month. And while the unemployment rate fell to 4.7 percent in May, that decline occurred because fewer people reported that they were actively seeking work. A broader measure of unemployment that includes individuals who want and are available to work but have not searched recently as well as people who are working part time but would rather work full time has flattened out. On a more positive note, average hourly earnings increased 2½ percent over the past 12 months—a bit faster than in earlier years and a welcome indication that wage growth may finally be picking up. Although recent labor market data have, on balance, been disappointing, it’s important not to overreact to one or two monthly readings. The Committee continues to expect that the labor market will strengthen further over the next few years. That said, we will be watching the job market carefully.