What an eventful June Federal Open Market Committee (FOMC) policy meeting!
The Federal Reserve left its benchmark interest rates in the target range of 2.25 percent to 2.50 percent. It was overwhelming – nine to one – but St. Louis Fed president James Bullard was the dissenting vote, calling for a quarter-point cut.
The Fed did hint at future rate cuts, but noted that it will “closely monitor” economic data before making its decision.
It also cut its inflation forecast, stating that it is unlikely to meet its target of two percent until 2021. It left its economic growth forecasts unchanged at 2.1 percent this year, two percent next year, and 1.8 percent in 2021.
The entire statement can be found below.
But here are some highlights from Fed Chair Jerome Powell’s press conference:
– Powell pushed back at reports that President Donald Trump is trying to remove him, noting that “The law is clear that I have a full-year term and I fully intend to serve it.”
– The Fed is not assuming that labor market has reached maximum employment.
– Powell revealed that the Fed understands the risks of leveraged lending.
– He does not believe a four percent inflation target is practical or credible.
– The Fed expects high standards if Facebook follows through with a cryptocurrency.
– He thinks the risks to expansion are evolving.
– Powell does not talk about the dollar, saying that it is the Treasury’s responsibility.
– He agrees that news on trade has been an important driver of market sentiment.
– Members agree that the case for lower rates has strengthened in recent months.
– Powell acknowledged the uncertainty in the economic outlook and vowed to act if it is necessary.
Here is the full statement:
Information received since the Federal Open Market Committee met in May indicates that the labor market remains strong and that economic activity is rising at a moderate rate. Job gains have been solid, on average, in recent months, and the unemployment rate has remained low. Although growth of household spending appears to have picked up from earlier in the year, indicators of business fixed investment have been soft. On a 12-month basis, overall inflation and inflation for items other than food and energy are running below 2 percent. Market-based measures of inflation compensation have declined; survey-based measures of longer-term inflation expectations are little changed.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. In support of these goals, the Committee decided to maintain the target range for the federal funds rate at 2-1/4 to 2-1/2 percent. The Committee continues to view sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective as the most likely outcomes, but uncertainties about this outlook have increased. In light of these uncertainties and muted inflation pressures, the Committee will closely monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion, with a strong labor market and inflation near its symmetric 2 percent objective.
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 maximum employment objective and its symmetric 2 percent inflation objective. 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.
Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; Richard H. Clarida; Charles L. Evans; Esther L. George; Randal K. Quarles; and Eric S. Rosengren. Voting against the action was James Bullard, who preferred at this meeting to lower the target range for the federal funds rate by 25 basis points.
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