As widely expected, the Fed dropped the use of the word "patient" in its guidance to financial markets of when it would start to normalize its monetary policy and raise the benchmark federal funds rate from the 0-0.25 percent range held since December 2008.
Instead, the Fed's policy making body, the Federal Open Market Committee (FOMC) linked any rate increase to further improvement in the jobs market and prospects of higher inflation, underlining that it had not made any decision about when it plans to raise its rate.
In contrast to its statement from Jan. 28, the Fed described economic growth as having "moderated somewhat," a slight downgrade from its previous statement when it said economic activity had beed "expanding at a solid pace."
Reflecting the drop in the February jobless rate to 5.5 percent from 5.7 percent in January, the Fed again said the "underutilization of labor resources continues to diminsh," but added that "export growth has weakened," an indication that the appreciation of the U.S. dollar is harming exports.
The Fed repeated that inflation had declined further from its objective due to lower energy prices but inflation expectations have remained stable. Headline consumer price inflation fell to minus 0.1 percent in January from 0.8 percent in December while core inflation was steady at 1.6 percent.
The Board of Governors of the Federal Reserve System issued the following statement:
"Information received since the Federal Open Market Committee met in January suggests that economic growth has moderated somewhat. Labor market conditions have improved further, with strong job gains and a lower unemployment rate. A range of labor market indicators suggests that underutilization of labor resources continues to diminish. Household spending is rising moderately; declines in energy prices have boosted household purchasing power. Business fixed investment is advancing, while the recovery in the housing sector remains slow and export growth has weakened. Inflation has declined further below the Committee's longer-run objective, largely reflecting declines in energy prices. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations have remained stable.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators continuing to move toward levels the Committee judges consistent with its dual mandate. The Committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced. Inflation is anticipated to remain near its recent low level in the near term, but the Committee expects inflation to rise gradually toward 2 percent over the medium term as the labor market improves further and the transitory effects of energy price declines and other factors dissipate. The Committee continues to monitor inflation developments closely.
To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate. In determining how long to maintain this target range, the Committee will assess progress--both realized and expected--toward 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. Consistent with its previous statement, the Committee judges that an increase in the target range for the federal funds rate remains unlikely at the April FOMC meeting. The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term. This change in the forward guidance does not indicate that the Committee has decided on the timing of the initial increase in the target range.
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. This policy, by keeping the Committee's holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.
When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.
Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Charles L. Evans; Stanley Fischer; Jeffrey M. Lacker; Dennis P. Lockhart; Jerome H. Powell; Daniel K. Tarullo; and John C. Williams."
The Federal Reserve later released Janet Yellen's prepared statement to the press conference as a transcript:
The Federal Reserve later released Janet Yellen's prepared statement to the press conference as a transcript:
Transcript of Chair Yellen’s FOMC Press Conference Opening Statement
March 18, 2015
CHAIR YELLEN. Good afternoon. As you know, the Federal Open Market Committee this afternoon reaffirmed the current 0 to 1/4 percent target range for the federal funds rate. We also updated our forward guidance, indicating that an increase in the target range for the federal funds rate remains unlikely at our next meeting in April. With continued improvement in economic conditions, however, we do not want to rule out the possibility that an increase in the target range could be warranted at subsequent meetings. Let me emphasize, however, that the timing of the initial increase in the target range will depend on the Committee’s assessment of incoming information. Today’s modification of our guidance should not be interpreted to mean that we have decided on the timing of that increase. In other words, just because we removed the word “patient” from the statement doesn’t mean we are going to be impatient. Moreover, even after the initial increase in the target funds rate, our policy is likely to remain highly accommodative to support continued progress toward our objectives of maximum employment and 2 percent inflation. I will come back to today’s policy decisions in a few moments, but first I would like to review economic developments and the outlook, which formed the basis for our policy decisions.
We have seen continued progress toward our objective of maximum employment. The pace of employment growth has remained strong, with job gains averaging nearly 290,000 per month over the past three months. The unemployment rate was 5.5 percent in February; that’s three-tenths lower than the latest reading available at the time of our December meeting. Broader measures of job market conditions—such as those counting individuals who want and are available to work but have not actively searched recently and people who are working part time but would rather work full time—have shown similar improvement. As we noted in our statement, slack in the labor market continues to diminish. Meanwhile, the labor force participation rate—the percentage of working-age Americans either working or seeking work—is lower than most estimates of its trend and wage growth remains sluggish, suggesting that some cyclical weakness persists. So considerable progress clearly has been achieved, but room for further improvement in the labor market continues.
Inflation has declined further below our longer-run objective, largely reflecting the lower
energy prices I just mentioned. Declining import prices have also restrained inflation and, in
light of the recent appreciation of the dollar, will likely continue to do so in the months ahead.
My colleagues and I continue to expect that as the effects of these transitory factors dissipate and
as the labor market improves further, inflation will move gradually back toward our 2 percent
objective over the medium term. In making this forecast, we are attentive to the low levels of
market-based measures of inflation compensation. In contrast, survey-based measures of longer-term inflation expectations have remained stable. The Committee will continue to monitor
inflation developments carefully.
Returning to monetary policy, as I noted at the outset, the Committee reaffirmed its view
that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate. But
with economic conditions improving, and with further improvement expected in the months
ahead, we have again modified our forward guidance. In December and January, the Committee judged that it could be patient in beginning to normalize the stance of monetary policy. That
meant that we considered it unlikely that economic conditions would warrant an increase in the
target range for the federal funds rate for at least the next couple of FOMC meetings. While it is
still the case that we consider it unlikely that economic conditions will warrant an increase in the
target range at the April meeting, such an increase could be warranted at any later meeting,
depending on how the economy evolves.
Once we begin to remove policy accommodation, we continue to expect that—in the
words of our statement—“even after employment and inflation are near mandate-consistent
levels, economic conditions may, for some time, warrant keeping the target federal funds rate
below levels the Committee views as normal in the longer run.”
Finally, the Committee will continue its policy of reinvesting proceeds from maturing
Treasury securities and principal payments from agency debt and mortgage-backed securities.
The Committee’s sizable holdings of longer-term securities should help maintain accommodative
financial conditions and promote further progress toward our objectives.
Thank you. Now I’ll be happy to take your questions."
CHAIR YELLEN. Good afternoon. As you know, the Federal Open Market Committee this afternoon reaffirmed the current 0 to 1/4 percent target range for the federal funds rate. We also updated our forward guidance, indicating that an increase in the target range for the federal funds rate remains unlikely at our next meeting in April. With continued improvement in economic conditions, however, we do not want to rule out the possibility that an increase in the target range could be warranted at subsequent meetings. Let me emphasize, however, that the timing of the initial increase in the target range will depend on the Committee’s assessment of incoming information. Today’s modification of our guidance should not be interpreted to mean that we have decided on the timing of that increase. In other words, just because we removed the word “patient” from the statement doesn’t mean we are going to be impatient. Moreover, even after the initial increase in the target funds rate, our policy is likely to remain highly accommodative to support continued progress toward our objectives of maximum employment and 2 percent inflation. I will come back to today’s policy decisions in a few moments, but first I would like to review economic developments and the outlook, which formed the basis for our policy decisions.
We have seen continued progress toward our objective of maximum employment. The pace of employment growth has remained strong, with job gains averaging nearly 290,000 per month over the past three months. The unemployment rate was 5.5 percent in February; that’s three-tenths lower than the latest reading available at the time of our December meeting. Broader measures of job market conditions—such as those counting individuals who want and are available to work but have not actively searched recently and people who are working part time but would rather work full time—have shown similar improvement. As we noted in our statement, slack in the labor market continues to diminish. Meanwhile, the labor force participation rate—the percentage of working-age Americans either working or seeking work—is lower than most estimates of its trend and wage growth remains sluggish, suggesting that some cyclical weakness persists. So considerable progress clearly has been achieved, but room for further improvement in the labor market continues.
We continue to expect sufficient underlying strength in economic growth to support
ongoing improvement in the labor market. After averaging about 2-1/2 percent over 2014,
growth of real gross domestic product appears to have slowed in the first quarter of this year, in
part reflecting a moderation in household spending. In addition, the recovery in the housing
sector remains subdued and export growth looks to have weakened. Looking ahead, however,
the Committee continues to expect a moderate pace of GDP growth, with robust job gains and
lower energy prices supporting household spending.
This assessment of the outlook is reflected in the individual economic projections
submitted for this meeting by the FOMC participants. As always, each participant’s projections
are conditioned on his or her own view of appropriate monetary policy. The unemployment rate
projections over the next few years and in the longer run are generally a bit lower than the
December projections. At the end of this year, the central tendency for the unemployment rate
stands at 5.0 to 5.2 percent, in line with participants’ estimates of the longer-run normal
unemployment rate. Committee participants generally see the unemployment rate declining a
little further over the course of 2016 and 2017. For economic growth, participants generally
reduced their projections since December, with many citing a weaker outlook for net exports.
Nonetheless, the central tendency of the growth projections for this year and next, at 2.3 to 2.7
percent, remains somewhat above estimates of the longer-run normal growth rate. Finally,
FOMC participants project inflation to be quite low this year, largely reflecting lower energy and
import prices. The central tendency of the inflation projections for this year is now below 1
percent, down noticeably since December. As the transitory factors holding down inflation
abate, the central tendency rebounds to 1.7 to 1.9 percent next year and rises to 1.9 to 2.0 percent
in 2017.
Let me emphasize again that today’s modification of the forward guidance should not be
read as indicating that the Committee has decided on the timing of the initial increase in the
target range for the federal funds rate. In particular, this change does not mean that an increase
will necessarily occur in June, although we can’t rule that out. As we noted in our statement, the
decision to raise the target range will depend on our assessment of realized and expected
progress toward our objectives of maximum employment and 2 percent inflation. We continue
to base that assessment on 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. We anticipate that it will be appropriate to raise the target range
for the federal funds rate when the Committee has seen further improvement in the labor market
and is reasonably confident that inflation will move back to its 2 percent objective over the
medium term.
This guidance is consistent with the paths for appropriate policy reported by FOMC
participants. Compared with the projections made in December, most participants lowered their
path for the federal funds rate, consistent with the downward revisions made to the projections
for GDP growth and inflation as well as somewhat lower estimates of the longer-run normal
unemployment rate. The median projection for the federal funds rate is just below 2 percent in
late 2016 and rises a bit above 3 percent in late 2017. The median projected rate in 2017 remains
below the 3-3/4 percent or so projected by most participants as the rate’s longer-run value, even
though the central tendency of the unemployment rate by that time is slightly below that of its
estimated longer-run value and the central tendency for inflation is close to our 2 percent
objective. Participants provide a number of explanations for the federal funds rate running below
its normal longer-run level at that time. These include, in particular, the residual effects of the
financial crisis, which are likely to continue to constrain spending and credit availability for
some time. I would like to emphasize that these forecasts of the appropriate path of the federal
funds rate are conditional on participants’ individual projections for economic output, inflation,
and other factors. But our actual policy actions over time will be data dependent. Accordingly,
if the expansion proves to be more vigorous than currently anticipated and inflation moves higher
than expected, then the appropriate path would likely follow a steeper and higher trajectory;
conversely, if conditions were to prove weaker, then the appropriate trajectory would be lower
and less steep.
Thank you. Now I’ll be happy to take your questions."
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