March 25, 1997 FOMC Statement

FOMC statement

FOMC statement

For immediate release

The Federal Open Market Committee decided today to tighten money market conditions slightly, expecting the federal funds rate to rise 1/4�percentage point to around 5-1/2 percent.

This action was taken in light of persisting strength in demand, which is progressively increasing the risk of inflationary imbalances developing in the economy that would eventually undermine the long expansion.

In these circumstances, the slight firming of monetary conditions is viewed as a prudent step that affords greater assurance of prolonging the current economic expansion by sustaining the existing low inflation environment through the rest of this year and next. The experience of the last several years has reinforced the conviction that low inflation is essential to realizing the economy's fullest growth potential.

No change was made in the Federal Reserve discount rate, which remains at 5 percent.

The Federal Reserve today announced the following policy actions:

The Board of Governors approved a reduction in the discount rate from 5-1/4 percent to 5 percent, effective immediately.

In a related move, the Federal Open Market Committee agreed that the reduction would be reflected fully in interest rates in the reserve markets. This is expected to result in a reduction in the federal funds rate of 25 basis points, from about 5-1/2 percent to about 5-1/4 percent.

Moderating economic expansion in recent months has reduced potential inflationary pressures going forward. With price and cost trends already subdued, a slight easing of monetary policy is consistent with contained inflation and sustainable growth.

In taking the discount action, the Board approved requests submitted by the Boards of Directors of the Federal Reserve Banks of New York, Philadelphia, Cleveland, Atlanta, Minneapolis, and Dallas.

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