April 27, 2016 FOMC Statement

Target range 0.25–0.50% unchanged Vote 9–1 · Dissents: George ↑ Tone: Clearly dovish -0.76

At a glance·Statement·Our summary·Implementation Note

FOMC statement

Federal Reserve issues FOMC statement

For release at 2:00 p.m. EDT

Information received since the Federal Open Market Committee met in ~~January suggests~~ March indicates that labor market conditions have improved further even as growth in economic activity ~~has been expanding at a moderate pace despite the global economic and financial developments of recent months. Household~~ appears to have slowed. Growth in household spending has ~~been increasing~~ moderated, although households' real income has risen at a ~~moderate rate,~~ solid rate and consumer sentiment remains high. Since the beginning of the year, the housing sector has improved ~~further; however,~~ further but business fixed investment and net exports have been soft. A range of recent indicators, including strong job gains, points to additional strengthening of the labor market. Inflation ~~picked up in recent months; however, it~~ has continued to run below the Committee's 2 percent longer-run objective, partly reflecting earlier declines in energy prices and in falling prices of non-energy imports. Market-based measures of inflation compensation 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 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 continues to closely monitor inflation ~~developments closely.~~ indicators and global economic and financial developments.

Against this backdrop, 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; 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 ~~March 16,~~ April 27, 2016

Source

Our summary

What changed

The FOMC noted that labor market conditions have improved further, while economic growth appears to have slowed, and household spending has moderated despite solid real income gains.
The statement removed the reference to global economic and financial developments posing risks, and instead said the FOMC continues to closely monitor inflation indicators and global developments.
The description of inflation was updated to note it continues to run below target, partly reflecting earlier declines in energy prices and falling non-energy import prices.
The FOMC maintained the federal funds rate target range at 1/4 to 1/2 percent and kept its balance sheet reinvestment policy unchanged.
The vote was identical to the previous meeting, with Esther L. George dissenting in favor of a rate increase.

Implications

The removal of the explicit risk language suggests a slightly less cautious tone regarding global developments, while the emphasis on monitoring inflation and global conditions indicates continued data-dependence. The unchanged rate and balance sheet policy signal no near-term shift in the stance, and the persistent dissent suggests ongoing internal debate about the timing of future hikes.

Summary generated automatically from the statements. Not investment advice.

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 ~~March 17,~~ April 28, 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.

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