August 24, 1999 FOMC Statement

FOMC statement

FOMC statement

For immediate release

The Federal Open Market Committee today voted to raise its target for the federal funds rate by 25 basis points to 5-1/4 percent. In a related action, the Board of Governors approved a 25 basis point increase in the discount rate to 4-3/4 percent.

With financial markets functioning more normally, and with persistent strength in domestic demand, foreign economies firming and labor markets remaining very tight, the degree of monetary ease required to address the global financial market turmoil of last fall is no longer consistent with sustained, noninflationary, economic expansion.

Today's increase in the federal funds rate, together with the policy action in June and the firming of conditions more generally in U.S. financial markets over recent months, should markedly diminish the risk of rising inflation going forward. As a consequence, the directive the Federal Open Market Committee adopted is symmetrical with regard to the outlook for policy over the near term.

In taking the discount rate action, the Federal Reserve Board approved requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Kansas City, and San Francisco. The discount rate is the interest rate that is charged depository institutions when they borrow from their district Federal Reserve Banks.

The Federal Open Market Committee today voted to raise its target for the federal funds rate 25 basis points to 5 percent. Last fall the Committee reduced interest rates to counter a significant seizing-up of financial markets in the United States. Since then much of the financial strain has eased, foreign economies have firmed, and economic activity in the United States has moved forward at a brisk pace. Accordingly, the full degree of adjustment is judged no longer necessary.

Labor markets have continued to tighten over recent quarters, but strengthening productivity growth has contained inflationary pressures.

Owing to the uncertain resolution of the balance of conflicting forces in the economy going forward, the FOMC has chosen to adopt a directive that includes no predilection about near-term policy action. The Committee, nonetheless, recognizes that in the current dynamic environment it must be especially alert to the emergence, or potential emergence, of inflationary forces that could undermine economic growth.

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