September 17, 2014
July 30, 2014
September 17, 2014 FOMC Statement
FOMC statement
Federal Reserve issues FOMC statement
For immediate release
Information received since the Federal Open Market Committee met in June indicates July suggests that growth in economic activity rebounded in the second quarter. Labor is expanding at a moderate pace. On balance, labor market conditions improved, with improved somewhat further; however, the unemployment rate declining further. However, is little changed and a range of labor market indicators suggests that there remains significant underutilization of labor resources. Household spending appears to be rising moderately and business fixed investment is advancing, while the recovery in the housing sector remains slow. Fiscal policy is restraining economic growth, although the extent of restraint is diminishing. Inflation has moved somewhat closer to been running below the Committee's longer-run objective. Longer-term inflation expectations have remained stable.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators and inflation moving toward levels the Committee judges consistent with its dual mandate. The Committee sees the risks to the outlook for economic activity and the labor market as nearly balanced and judges that the likelihood of inflation running persistently below 2 percent has diminished somewhat. somewhat since early this year.
The Committee currently judges that there is sufficient underlying strength in the broader economy to support ongoing improvement in labor market conditions. In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions since the inception of the current asset purchase program, the Committee decided to make a further measured reduction in the pace of its asset purchases. Beginning in August, October, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $10 $5 billion per month rather than $15 $10 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $15 $10 billion per month rather than $20 $15 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee's sizable and still-increasing holdings of longer-term securities should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee's dual mandate.
The Committee will closely monitor incoming information on economic and financial developments in coming months and will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. If incoming information broadly supports the Committee's expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective, the Committee will likely reduce the pace end its current program of asset purchases in further measured steps at future meetings. its next meeting. However, asset purchases are not on a preset course, and the Committee's decisions about their pace will remain contingent on the Committee's outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of such purchases.
To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy remains appropriate. In determining how long to maintain the current 0 to 1/4 percent target range for the federal funds rate, the Committee will assess progress--both realized and expected--toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. The Committee continues to anticipate, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored.
When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.
Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Stanley Fischer; Richard W. Fisher; Narayana Kocherlakota; Loretta J. Mester; Jerome H. Powell; and Daniel K. Tarullo. Voting against was the action were Richard W. Fisher and Charles I. Plosser. President Fisher believed that the continued strengthening of the real economy, improved outlook for labor utilization and for general price stability, and continued signs of financial market excess, will likely warrant an earlier reduction in monetary accommodation than is suggested by the Committee's stated forward guidance. President Plosser who objected to the guidance indicating that it likely will be appropriate to maintain the current target range for the federal funds rate for "a considerable time after the asset purchase program ends," because such language is time dependent and does not reflect the considerable economic progress that has been made toward the Committee's goals.
Statement Regarding Purchases of Treasury Securities and Agency Mortgage-Backed Securities
Our summary
What changed
- The FOMC reduced its monthly asset purchases: agency mortgage-backed securities to $5 billion and longer-term Treasury securities to $10 billion, effective in October.
- The statement now says the FOMC will likely end its asset purchase program at its next meeting if incoming data support its outlook.
- Economic activity is described as expanding at a moderate pace, with labor market conditions improving somewhat further but the unemployment rate little changed.
- Inflation is now described as running below the FOMC's longer-run objective, and the likelihood of persistently low inflation has diminished somewhat since early this year.
- The vote was 7-2, with Richard Fisher joining Charles Plosser in dissent; Fisher favored earlier reduction in accommodation.
Implications
The shift to a likely end of asset purchases at the next meeting signals a clear path toward concluding the program, contingent on economic data.
The downgrade in inflation language and the emphasis on underutilization suggest the FOMC remains cautious about raising rates, despite the taper.
The addition of a second dissenter favoring earlier tightening may indicate growing internal pressure to move away from the current accommodative stance.
Summary generated automatically from the statements. Not investment advice.
Projections
| 2014 | 2015 | 2016 | 2017 | Longer run | |
|---|---|---|---|---|---|
| Real GDP growth | |||||
| Unemployment rate | |||||
| PCE inflation | |||||
| Core PCE inflation | |||||
| Federal funds rate |
Median projections of FOMC participants; previous: June.
Each dot is one participant's projection of the federal funds rate (%) at the end of each year and in the longer run.
September June median June median
Scroll the chart sideways for the later years.
Press conference
September 17, 2014, 2:30 p.m. ET · Read the transcript
What Yellen said that the statement didn't
- The chair said the FOMC released a separate document on policy normalization principles and plans, which was not mentioned in the statement.
- The chair said the median projection for the federal funds rate at the end of 2016 is 2.9 percent, nearly a percentage point below the longer-run normal level of about 3¾ percent.
- The chair said the FOMC now anticipates establishing a target range, rather than a single point, for the federal funds rate when normalization begins.
- The chair said the primary tool for moving the federal funds rate into the target range will be the interest rate paid on excess reserves (IOER), and that the federal funds rate will trade below the IOER rate while reserves are plentiful.
- The chair said the FOMC expects to cease reinvestments of principal on securities after the initial increase in the target range for the federal funds rate, and does not anticipate selling agency mortgage-backed securities as part of normalization.
Summary generated automatically from the transcript and the statement.