The Fed has dropped considerable time from its policy statement.
The Fed just released its latest monetary policy statement of 2014, and said it will be patient in how long it waits to raise interest rates.
Previously the Fed had said it would wait a “considerable time.”
Here’s the key passage:
“Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy.”
The Fed added that it feels this guidance is “consistent” with its previous statement.
Additionally, the Fed noted that economic activity is expanding at a moderate pace, labour market conditions improved further, and noted that inflation continues to run below its target which reflects a decline in energy prices.
The Fed also continued to stress the data dependency of its future policy decisions, saying that if incoming data are better than expected then rates will rise faster, while disappointing data would keep rates lower than currently expected.
Here’s the full statement from the Fed:
Information received since the Federal Open Market Committee met in October suggests that economic activity is expanding at a moderate pace. Labour market conditions improved further, with solid job gains and a lower unemployment rate. On balance, a range of labour market indicators suggests that underutilization of labour resources continues to diminish. Household spending is rising moderately and business fixed investment is advancing, while the recovery in the housing sector remains slow. Inflation has continued to run below the Committee’s longer-run objective, partly reflecting declines in energy prices. Market-based measures of inflation compensation have declined somewhat further; 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 labour market indicators moving toward levels the Committee judges consistent with its dual mandate. The Committee sees the risks to the outlook for economic activity and the labour market as nearly balanced. The Committee expects inflation to rise gradually toward 2 per cent as the labour market improves further and the transitory effects of lower energy prices 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 per cent target range for the federal funds rate remains appropriate. In determining how long to maintain this target range, the Committee will assess progress–both realised and expected–toward its objectives of maximum employment and 2 per cent inflation. This assessment will take into account a wide range of information, including measures of labour market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy. The Committee sees this guidance as consistent with its previous statement that it likely will be appropriate to maintain the 0 to 1/4 per cent target range for the federal funds rate for a considerable time following the end of its asset purchase program in October, especially if projected inflation continues to run below the Committee’s 2 per cent longer-run goal, and provided that longer-term inflation expectations remain well anchored. However, if incoming information indicates faster progress toward the Committee’s employment and inflation objectives than the Committee now expects, then increases in the target range for the federal funds rate are likely to occur sooner than currently anticipated. Conversely, if progress proves slower than expected, then increases in the target range are likely to occur later than currently anticipated.
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 per cent. 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; Stanley Fischer; Loretta J. Mester; Jerome H. Powell; and Daniel K. Tarullo.
Voting against the action were Richard W. Fisher, who believed that, while the Committee should be patient in beginning to normalize monetary policy, improvement in the U.S. economic performance since October has moved forward, further than the majority of the Committee envisions, the date when it will likely be appropriate to increase the federal funds rate; Narayana Kocherlakota, who believed that the Committee’s decision, in the context of ongoing low inflation and falling market-based measures of longer-term inflation expectations, created undue downside risk to the credibility of the 2 per cent inflation target; and Charles I. Plosser, who believed that the statement should not stress the importance of the passage of time as a key element of its forward guidance and, given the improvement in economic conditions, should not emphasise the consistency of the current forward guidance with previous statements.
The Fed’s announcement will be followed by a press conference from Fed Chair Janet Yellen at 2:30 pm ET.
Along with the policy statement at 2:00, the Fed will also released its latest Summary of Economic Projections, which contain the Fed’s outlook for GDP, inflation, and the latest “dot plot.”
More to come …