- Strengthening labor market
- Economic activity has picked up since first half of the year.
- Job gains have been solid.
- Household spending is strong while business fixed investment remains soft.
- Inflation remains below the 2% long-run objective.
- Near term risks to the economic out look appear balanced.
- Two more members (totaling three) voted to raise rates during the meeting.
- Bottom Line: data-dependent wait and see continues,but the Committee believes the case for an increase in the federal funds rate has strengthened.
[Using the FOMC July 27, 2016, Press Release as the base document, the September 21, 2016 Press Release changes are highlighted in the form of deletions (strike out) or insertions (in bold).]
Release Date: September 21, 2016
Information received since the Federal Open Market Committee met in July June indicates that the labor market has continued to strengthen strengthened and growth of that economic activity has picked up from the modest pace seen in the first half of this year. Although the unemployment been expanding at a moderate rate is little changed. Job gains were strong in June following weak growth in May. On balance, payrolls and other labor market indicators point to some increase in labor utilization in recent months, job gains have been solid, on average. Household spending has been growing strongly but business fixed investment has remained been 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 conditions indicators will 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 appear roughly balanced have diminished. 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 towards 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 were was Esther L. George, Loretta J. Mester; and Eric Rosengren, each of whom who preferred at this meeting to raise the target range for the federal funds rate to 1/2 to 3/4 percent.
Source: The Federal Reserve