FOMC Holds Interest Rates Steady but Upgrades Assessment of the Economy

At today's meeting of the Federal Open Market Committee, the Fed indicated that "economic activity will expand at a moderate pace" instead of suggesting that "recent global economic and financial developments may restrain economic activity" as suggested at the last meeting. Risks to the economic outlook were viewed as "nearly balanced."

Price inflation was seen as running below the Fed's long term objective of 2% as a result of lower energy prices and lower prices of non-energy imports. Expectations remained the same as last meeting for a return to 2 percent inflation "over the medium term as the labor market improves and the effects from lower energy and import prices fade"; however, "longer-term inflation expectation have remained stable."

As indicated earlier, "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."

Economic projections accompanying today's meeting called for 2.1% growth in real GDP this year, 2.3% growth next year and a 2.2% advance in 2017. The "core" PCE price index was expected to rise 1.4% this year, 1.7% in 2016 and 1.9% in 2017. The unemployment rate was projected to average 5.0% in 2015 then 4.8% in both 2016 and 2017.

The press release for today's FOMC meeting can be found here.

The backdrop to today's meeting was stable M2 growth of 6.2% y/y and monetary base growth of -0.5% y/y. In addition, the foreign exchange value of the U.S. dollar has risen 15.2% during the past year.

Haver's SURVEYS database contains the economic projections from the Federal Reserve Board.