March 16, 2016
January 27, 2016
March 16, 2016 FOMC Statement
FOMC statement
Federal Reserve issues FOMC statement
For release at 2:00 p.m. EST EDT
Information received since the Federal Open Market Committee met in December January suggests that labor market conditions improved further even as economic growth slowed late last year. activity has been expanding at a moderate pace despite the global economic and financial developments of recent months. Household spending and business fixed investment have has been increasing at a moderate rates in recent months, rate, and the housing sector has improved further; however, business fixed investment and net exports have been soft and inventory investment slowed. soft. A range of recent labor market indicators, including strong job gains, points to some additional decline in underutilization strengthening of the labor resources. market. Inflation has picked up in recent months; however, it continued to run below the Committee's 2 percent longer-run objective, partly reflecting declines in energy prices and in prices of non-energy imports. Market-based measures of inflation compensation declined further; remain low; survey-based measures of longer-term inflation expectations are little changed, on balance, in recent months.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee currently expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market indicators will continue to strengthen. However, global economic and financial developments continue to pose risks. Inflation is expected to remain low in the near term, in part because of the further earlier declines in energy prices, but to rise to 2 percent over the medium term as the transitory effects of declines in energy and import prices dissipate and the labor market strengthens further. The Committee is closely monitoring global economic and financial developments and is assessing their implications for the labor market and inflation, and for the balance of risks continues to the outlook. monitor inflation developments closely.
Given Against this backdrop, the economic outlook, the Committee decided to maintain the target range for the federal funds rate at 1/4 to 1/2 percent. The stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation.
In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to 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 and international developments. In light of the current shortfall of inflation from 2 percent, the Committee will carefully monitor actual and expected progress toward its inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.
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, and it anticipates doing so until normalization of the level of the federal funds rate is well under way. This policy, by keeping the Committee's holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.
Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; James Bullard; Stanley Fischer; Esther L. George; Loretta J. Mester; Jerome H. Powell; Eric Rosengren; and Daniel K. Tarullo. Voting against the action was Esther L. George, who preferred at this meeting to raise the target range for the federal funds rate to 1/2 to 3/4 percent.
Implementation Note issued January 27, March 16, 2016
Our summary
What changed
- The FOMC noted that economic activity is expanding at a moderate pace despite global and financial developments, a shift from the previous assessment of slowing growth.
- It upgraded the labor market description to 'additional strengthening' and noted that inflation picked up recently, though it remains below target.
- The statement added that global economic and financial developments continue to pose risks, and the FOMC will monitor inflation developments closely.
- The target range for the federal funds rate was maintained at 1/4 to 1/2 percent, with no change in balance sheet policy.
- Esther L. George dissented, preferring to raise the target range to 1/2 to 3/4 percent.
Implications
The upgraded language on growth and inflation, alongside the explicit mention of ongoing risks, suggests the FOMC sees a slightly more balanced outlook but remains cautious about global headwinds.
The dissent for a rate hike indicates internal disagreement, which markets might interpret as a signal that the next move could come sooner if data continue to improve, but the overall stance remains accommodative.
Summary generated automatically from the statements. Not investment advice.
Projections
| 2016 | 2017 | 2018 | Longer run | |
|---|---|---|---|---|
| Real GDP growth | 2.2 was 2.4 | 2.1 was 2.2 | 2.0 | 2.0 |
| Unemployment rate | 4.7 | 4.6 was 4.7 | 4.5 was 4.7 | 4.8 was 4.9 |
| PCE inflation | 1.2 was 1.6 | 1.9 | 2.0 | 2.0 |
| Core PCE inflation | 1.6 | 1.8 was 1.9 | 2.0 | |
| Federal funds rate | 0.9 was 1.4 | 1.9 was 2.4 | 3.0 was 3.3 | 3.3 was 3.5 |
Median projections of FOMC participants; previous: December.
Each dot is one participant's projection of the federal funds rate (%) at the end of each year and in the longer run.
March December median December median
Scroll the chart sideways for the later years.
Implementation Note
The settings that put the decision into effect: the interest rate paid on reserves, the FOMC's instructions to the New York Fed's trading desk, and the discount rate. Changes are marked the same way as in the statement.
- The Board of Governors of the Federal Reserve System left unchanged the interest rate paid on required and excess reserve balances at 0.50 percent.
- As part of its policy decision, the Federal Open Market Committee voted to authorize and direct the Open Market Desk at the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the System Open Market Account in accordance with the following domestic policy directive: "Effective
January 28,March 17, 2016, the Federal Open Market Committee directs the Desk to undertake open market operations as necessary to maintain the federal funds rate in a target range of 1/4 to 1/2 percent, including overnight reverse repurchase operations (and reverse repurchase operations with maturities of more than one day when necessary to accommodate weekend, holiday, or similar trading conventions) at an offering rate of 0.25 percent, in amounts limited only by the value of Treasury securities held outright in the System Open Market Account that are available for such operations and by a per-counterparty limit of $30 billion per day. The Committee directs the Desk to continue rolling over maturing Treasury securities at auction and to continue reinvesting principal payments on all agency debt and agency mortgage-backed securities in agency mortgage-backed securities. The Committee also directs the Desk to engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve's agency mortgage-backed securities transactions." More information regarding open market operations may be found on the Federal Reserve Bank of New York's website. - The Board of Governors of the Federal Reserve System took no action to change the discount rate (the primary credit rate), which remains at 1.00 percent.
Press conference
March 16, 2016, 2:30 p.m. ET · Read the transcript
What Yellen said that the statement didn't
- The median federal funds rate projection was lowered by about half a percentage point for 2016 and 2017 compared with December, with the median longer-run normal rate also revised down.
- The neutral nominal federal funds rate is currently low by historical standards and is expected to rise only gradually over time, partly due to persistent headwinds like subdued household formation and meager productivity growth.
- The FOMC does not seek to engineer an overshoot of inflation to compensate for past undershoots, and its tolerance for under- and overshoots is symmetric around the 2 percent objective.
- Recent inflation readings have been influenced by unusually high prices in volatile categories, and the chair had not yet concluded that a lasting uptick in core inflation has been seen.
- Global growth forecasts have been slightly downgraded by international agencies, with negative fourth-quarter growth in Japan and recent indicators in the euro area cited as specific concerns.
Summary generated automatically from the transcript and the statement.