May 18, 1999 FOMC Statement

FOMC statement

FOMC statement

For immediate release

The Federal Reserve released the following statement after today's Federal Open Market Committee meeting:

While the FOMC did not take action today to alter the stance of monetary policy, the Committee was concerned about the potential for a buildup of inflationary imbalances that could undermine the favorable performance of the economy and therefore adopted a directive that is tilted toward the possibility of a firming in the stance of monetary policy. Trend increases in costs and core prices have generally remained quite subdued. But domestic financial markets have recovered and foreign economic prospects have improved since the easing of monetary policy last fall. Against the background of already-tight domestic labor markets and ongoing strength in demand in excess of productivity gains, the Committee recognizes the need to be alert to developments over coming months that might indicate that financial conditions may no longer be consistent with containing inflation.

The Federal Reserve today announced the following set of policy actions:

The Board of Governors approved a reduction in the discount rate by 25 basis points from 4-3/4 percent to 4-1/2 percent.

The federal funds rate is expected to fall 25 basis points from around 5 percent to around 4-3/4 percent.

Although conditions in financial markets have settled down materially since mid-October, unusual strains remain. With the 75 basis point decline in the federal funds rate since September, financial conditions can reasonably be expected to be consistent with fostering sustained economic expansion while keeping inflationary pressures subdued.

In taking the discount rate action, the Board approved requests submitted by the Boards of Directors of the Federal Reserve Banks of New York, Philadelphia, and Dallas. The discount rate is the interest rate that is charged depository institutions when they borrow from their district Federal Reserve Banks.

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