June 15, 2016
April 27, 2016
Statement·Presser·Minutes·Policy
JYJanet L. YellenJune 15, 2016 FOMC Statement
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 March April indicates that the pace of improvement in the labor market conditions have improved further even as has slowed while growth in economic activity appears to have slowed. picked up. Although the unemployment rate has declined, job gains have diminished. Growth in household spending has moderated, although households' real income has risen at a solid rate and consumer sentiment remains high. strengthened. Since the beginning of the year, the housing sector has improved further but business fixed investment continued to improve and the drag from net exports appears to have lessened, but business fixed investment has been soft. A range of recent indicators, including strong job gains, points to additional strengthening of the labor market. Inflation has continued to run below the Committee's 2 percent longer-run objective, partly reflecting earlier declines in energy prices and falling in prices of non-energy imports. Market-based measures of inflation compensation remain low; declined; most 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. 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 past declines in energy and import prices dissipate and the labor market strengthens further. The Committee continues to closely monitor inflation 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; 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 April 27, June 15, 2016
Our summary
What changed
- The FOMC noted the labor market improvement pace has slowed, with diminished job gains despite a lower unemployment rate, while economic activity growth appears to have picked up.
- Household spending growth is described as strengthened, and the drag from net exports has lessened, though business fixed investment remains soft.
- Market-based inflation compensation measures declined, and the language on survey-based expectations shifted to 'most' being little changed.
- The FOMC maintained the federal funds rate target range at 1/4 to 1/2 percent and kept its reinvestment policy unchanged.
- The vote was unanimous; Esther L. George no longer dissented, as she voted with the majority this meeting.
Implications
The downgrade in labor market language and decline in market-based inflation compensation suggest the FOMC sees less urgency to raise rates soon, reinforcing a patient stance.
The unanimous vote, after a prior dissent, signals greater internal agreement on holding rates steady, which markets may interpret as reduced near-term tightening pressure.
The softer inflation outlook language, with 'past' rather than 'earlier' declines, implies the FOMC expects transitory effects to fade, but the near-term path remains data-dependent.
Summary generated automatically from the statements. Not investment advice.
Projections
| 2016 | 2017 | 2018 | Longer run | |
|---|---|---|---|---|
| Real GDP growth | 2.0 was 2.2 | 2.0 was 2.1 | 2.0 | 2.0 |
| Unemployment rate | 4.7 | 4.6 | 4.6 was 4.5 | 4.8 |
| PCE inflation | 1.4 was 1.2 | 1.9 | 2.0 | 2.0 |
| Core PCE inflation | 1.7 was 1.6 | 1.9 was 1.8 | 2.0 | |
| Federal funds rate | 0.9 | 1.6 was 1.9 | 2.4 was 3.0 | 3.0 was 3.3 |
Median projections of FOMC participants; previous: March.
Each dot is one participant's projection of the federal funds rate (%) at the end of each year and in the longer run.
June March median March 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
April 28,June 16, 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
June 15, 2016, 2:30 p.m. ET · Read the transcript
What Yellen said that the statement didn't
- The chair said the first-quarter slowdown in household spending appears to have been temporary, with second-quarter indicators pointing to a sizable rebound.
- The chair said job gains in April and May averaged only about 80,000 per month, and the unemployment rate fell to 4.7 percent in May because fewer people were actively seeking work.
- The chair said average hourly earnings increased 2½ percent over the past 12 months, a bit faster than in earlier years.
- The chair said the median projection for the federal funds rate rises to 1½ percent at the end of next year and 2½ percent by the end of 2018, somewhat below its estimated longer-run normal level.
- The chair said the upcoming U.K. vote on leaving the European Union was one of the factors that factored into today’s decision, as it could have consequences for the U.S. economic outlook.
Summary generated automatically from the transcript and the statement.