September 21, 2016
July 27, 2016
September 21, 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 June July indicates that the labor market strengthened has continued to strengthen and that growth of economic activity has been expanding at a moderate rate. Job gains were strong picked up from the modest pace seen in June following weak growth the first half of this year. Although the unemployment rate is little changed in May. On balance, payrolls and other labor market indicators point to some increase in labor utilization in recent months. months, job gains have been solid, on average. Household spending has been growing strongly but business fixed investment has been remained soft. Inflation has continued to run below the Committee's 2 percent longer-run objective, partly reflecting earlier declines in energy prices and in prices of non-energy imports. Market-based measures of inflation compensation remain low; 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 conditions will strengthen. strengthen somewhat further. 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. Near-term risks to the economic outlook have diminished. appear roughly balanced. 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 Committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives. 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 were: Esther L. George, who Loretta J. Mester, and Eric Rosengren, each of whom preferred at this meeting to raise the target range for the federal funds rate to 1/2 to 3/4 percent.
Implementation Note issued July 27, September 21, 2016
Our summary
What changed
- The FOMC upgraded its view of economic activity, stating growth has picked up from the modest pace earlier in the year, and labor market conditions have continued to strengthen.
- It revised its risk assessment from diminished to roughly balanced.
- The FOMC added that the case for an increase in the federal funds rate has strengthened, but it decided to wait for further evidence of progress toward its objectives.
- Three officials dissented, preferring to raise the target range to 1/2 to 3/4 percent, whereas only one dissented previously.
Implications
The language suggests the FOMC is moving closer to a rate hike, but it is not yet ready to act, waiting for more data. Markets may interpret this as a signal that a rate increase is likely later this year if economic conditions continue to improve.
The increased number of dissents favoring a hike highlights internal pressure for action, reinforcing the hawkish tilt in the FOMC's communication.
Summary generated automatically from the statements. Not investment advice.
Projections
| 2016 | 2017 | 2018 | 2019 | Longer run | |
|---|---|---|---|---|---|
| Real GDP growth | 1.8 was 2.0 | 2.0 | 2.0 | 1.8 | 1.8 was 2.0 |
| Unemployment rate | 4.8 was 4.7 | 4.6 | 4.5 was 4.6 | 4.6 | 4.8 |
| PCE inflation | 1.3 was 1.4 | 1.9 | 2.0 | 2.0 | 2.0 |
| Core PCE inflation | 1.7 | 1.8 was 1.9 | 2.0 | 2.0 | |
| Federal funds rate | 0.6 was 0.9 | 1.1 was 1.6 | 1.9 was 2.4 | 2.6 | 2.9 was 3.0 |
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.
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
July 28,September 22, 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
September 21, 2016, 2:30 p.m. ET · Read the transcript
What Yellen said that the statement didn't
- The chair said the median projection for the federal funds rate rises to 1.1 percent by end-2017, 1.9 percent by end-2018, and 2.6 percent by end-2019, with the median longer-run normal rate marked down to 2.9 percent.
- She said the economy has "a little more room to run than might have been previously thought," citing increased labor force participation and a rising employment-to-population ratio as evidence people are being drawn back into the labor market.
- She said that if the economy continues on its current course with labor market improvement and no major new risks, she would expect one increase in the federal funds rate this year.
- She said the decision to wait was partly because the economy is not overheating and that the strong labor market is attracting people from outside the labor force, which is "good to see" and reduces pressure on utilization.
- She said that partisan politics plays no role in Fed decisions, responding to a charge that the Fed is keeping rates low to support the Obama administration, and that the Fed was established as an independent agency to insulate policy from short-term political pressures.
Summary generated automatically from the transcript and the statement.