December 14, 2016
November 02, 2016
December 14, 2016 FOMC Statement
FOMC statement
Federal Reserve issues FOMC statement
For release at 2:00 p.m. EDT EST
Information received since the Federal Open Market Committee met in September November indicates that the labor market has continued to strengthen and growth of that economic activity has picked up from the modest been expanding at a moderate pace seen since mid-year. Job gains have been solid in recent months and the first half of this year. Although the unemployment rate is little changed in recent months, job gains have been solid. has declined. Household spending has been rising moderately but business fixed investment has remained soft. Inflation has increased somewhat since earlier this year but is still 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 have moved up considerably but remain still are 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 expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market conditions will strengthen somewhat further. Inflation is expected 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 appear roughly balanced. The Committee continues to closely monitor inflation indicators and global economic and financial developments.
Against this backdrop, In view of realized and expected labor market conditions and inflation, the Committee decided to maintain raise 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 continued to strengthen but decided, for the time being, to wait for some further evidence of continued progress toward its objectives. 3/4 percent. The stance of monetary policy remains accommodative, thereby supporting some further improvement strengthening 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 were: Esther L. George and Loretta J. Mester, 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 November 2, December 14, 2016
Our summary
What changed
- The FOMC raised the target range for the federal funds rate to 1/2 to 3/4 percent, up from 1/4 to 1/2 percent.
- It removed the previous language about waiting for further evidence, replacing it with a decision based on realized and expected labor market and inflation conditions.
- The description of the economy was upgraded: unemployment declined, job gains held firm, and inflation compensation moved up considerably.
- The balance sheet policy remained unchanged, with reinvestment and rollover continuing until normalization is well under way.
- The vote was unanimous; previous dissents from George and Mester were not in this statement.
Implications
The shift in language signals the FOMC saw sufficient progress toward its objectives to begin raising rates, yet it maintains a patient stance with expectations of only gradual future increases.
The unchanged forward guidance about gradual increases and the balance sheet suggests the FOMC intends a modest normalization path, with markets likely to interpret this as a one-step move rather than the start of a rapid tightening cycle.
Summary generated automatically from the statements. Not investment advice.
Projections
| 2016 | 2017 | 2018 | 2019 | Longer run | |
|---|---|---|---|---|---|
| Real GDP growth | 1.9 was 1.8 | 2.1 was 2.0 | 2.0 | 1.9 was 1.8 | 1.8 |
| Unemployment rate | 4.7 was 4.8 | 4.5 was 4.6 | 4.5 | 4.5 was 4.6 | 4.8 |
| PCE inflation | 1.5 was 1.3 | 1.9 | 2.0 | 2.0 | 2.0 |
| Core PCE inflation | 1.7 | 1.8 | 2.0 | 2.0 | |
| Federal funds rate | 0.6 | 1.4 was 1.1 | 2.1 was 1.9 | 2.9 was 2.6 | 3.0 was 2.9 |
Median projections of FOMC participants; previous: September.
Each dot is one participant's projection of the federal funds rate (%) at the end of each year and in the longer run.
December September median September 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 unchangedvoted unanimously to raise the interest rate paid on required and excess reserve balancesat 0.50 percent.to 0.75 percent, effective December 15, 2016. - 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
November 3,December 15, 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 of1/4 to1/2 to 3/4 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 of0.250.50 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. - In a related action, the Board of Governors of the Federal Reserve System voted unanimously to approve a 1/4 percentage point increase in the discount rate (the primary credit rate) to 1.25 percent, effective December 15, 2016. In taking this action, the Board approved requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Kansas City, Dallas, and San Francisco.
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
December 14, 2016, 2:30 p.m. ET · Read the transcript
What Yellen said that the statement didn't
- The chair said the economy has added 2¼ million net new jobs over the past year and more than 15 million jobs since the depths of the Great Recession.
- The chair said the unemployment rate fell to 4.6 percent in November, the lowest level since 2007.
- The chair said the median projection for the federal funds rate rises to 1.4 percent at the end of 2017, 2.1 percent at the end of 2018, and 2.9 percent by the end of 2019.
- The chair said the median projection for inflation is 1.5 percent this year, rising to 1.9 percent next year and 2 percent in 2018 and 2019.
- The chair said the neutral nominal federal funds rate is currently quite low by historical standards, and that policy is not on a preset course.
Summary generated automatically from the transcript and the statement.