The statement about inflation by the
U.S. central bank, which has raised its rate five times since starting its
tightening cycle in December 2015, contrasts with its view in December last
year when it said it expected inflation to remain below 2 percent in the near
term before stabilizing around the target in the medium term.
But as in December, the Fed said
near-term risks to the economic outlook "appear roughly balanced, but the
Committee is monitoring inflation developments closely."
In today's statement the Fed's
policy-making arm, the Federal Open Market Committee (FOMC) also said measures
of inflation compensation had risen in recent months but remained low while
surveys of longer term inflation expectations were little changed.
In December the FOMC said measures of
inflation compensation remained low.
Consumer price inflation in the U.S.
has fluctuated between a high of 2.7 percent in February to a low of 1.6
percent in June and was at 2.1 percent in December, down from 2.2 percent in
November.
Today's meeting by the FOMC marked the
last rate-setting meeting by Janet Yellen, the first woman to lead the Fed who
took over in February 2014.
As expected, the FOMC unanimously
elected Jerome Powell as its next chairman, effective Feb.3, and he is
scheduled to be sworn in on Feb. 5. Today's policy decision was also unanimous.
Mirroring its view from December, the
FOMC described U.S. economic activity as rising at "a solid rate,"
with the labour market also continuing to strengthen.
"Gains in employment, household
spending, and business fixed investment have been solid, and the unemployment
rate has stayed low," the FOMC said, adding that with "further gradual
adjustments in the stance of monetary policy, economic activity will expand at
a moderate pace and labour market conditions will remain strong."
The U.S. economy has been picking up speed since the third quarter of
2016, with Gross Domestic Product expanding by an annual rate of 2.5 percent in
the fourth quarter of 2017. This was the sixth consecutive quarter of stronger
growth, and up from 2.3 percent in the third quarter.
The unemployment rate was steady at 4.1 percent in December, the lowest
rate since 2000.
Last year the Fed raised its fed funds rate three times and
forecast in December that it would hike the rate another three times this
year
After moving sideways from early 2015 to late 2016, the U.S. dollar rose
in the final months quarter of 2016 and then steadily declined against the euro
throughout 2017 to hit 1.24 today, down 3.2 percent since the start
of this year.
In an update of its longer-run goals and monetary policy strategy, the FOMC also reaffirmed its goal of 2 percent inflation as measured by the personal consumption expenditure index.
In an update of its longer-run goals and monetary policy strategy, the FOMC also reaffirmed its goal of 2 percent inflation as measured by the personal consumption expenditure index.
"Information received since the Federal Open Market Committee met in December indicates that the labor market has continued to strengthen and that economic activity has been rising at a solid rate. Gains in employment, household spending, and business fixed investment have been solid, and the unemployment rate has stayed low. On a 12-month basis, both overall inflation and inflation for items other than food and energy have continued to run below 2 percent. Market-based measures of inflation compensation have increased in recent months but remain low; survey-based measures of longer-term inflation expectations are little changed, on balance.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with further gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market conditions will remain strong. Inflation on a 12‑month basis is expected to move up this year and to stabilize around the Committee's 2 percent objective over the medium term. Near-term risks to the economic outlook appear roughly balanced, but the Committee is monitoring inflation developments closely.
In view of realized and expected labor market conditions and inflation, the Committee decided to maintain the target range for the federal funds rate at 1-1/4 to 1‑1/2 percent. The stance of monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustained 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. The Committee will carefully monitor actual and expected inflation developments relative to its symmetric inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant further 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.
Voting for the FOMC monetary policy action were Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Thomas I. Barkin; Raphael W. Bostic; Lael Brainard; Loretta J. Mester; Jerome H. Powell; Randal K. Quarles; and John C. Williams."
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