Hurricane damage beat job gains in the US Federal Reserve’s short-term economic assessment out today, and the central bank’s open market committee opted to keep its federal funds rate target range at 1-1.25%.
The bank gave 2 lines at the end of its summary to its treasuries selldown, which it said would start in October. The bulk of the statement issued today, though, is the usual blather.
I’ve also linked below to the Fed’s economic projections, out today, but haven’t written about them.
Here’s how the bank expressed its assessment, leading to a 9-0 vote:
“Information received since the committee met in July indicates that the labour market has continued to strengthen and that economic activity has been rising moderately so far this year. Job gains have remained solid in recent months and the unemployment rate has stayed low. Household spending has been expanding at a moderate rate, and growth in business fixed investment has picked up in recent quarters.
“On a 12-month basis, overall inflation and the measure excluding food & energy prices have declined this year and are running below 2%. Market-based measures of inflation compensation 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 & price stability. Hurricanes Harvey, Irma & Maria have devastated many communities, inflicting severe hardship.
Storms only a short-term delay
“Storm-related disruptions & rebuilding will affect economic activity in the near term, but past experience suggests that the storms are unlikely to materially alter the course of the national economy over the medium term. Consequently, the committee continues to expect that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, and labour market conditions will strengthen somewhat further.
“Higher prices for gasoline & some other items in the aftermath of the hurricanes will likely boost inflation temporarily; apart from that effect, inflation on a 12-month basis is expected to remain somewhat below 2% in the near term but to stabilise around the committee’s 2% 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 realised & expected labour market conditions & inflation, the committee decided to maintain the target range for the federal funds rate at 1-1.25%. The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labour market conditions and a sustained return to 2% inflation.
“In determining the timing & size of future adjustments to the target range for the federal funds rate, the committee will assess realised & expected economic conditions relative to its objectives of maximum employment & 2% inflation. This assessment will take into account a wide range of information, including measures of labour market conditions, indicators of inflation pressures & inflation expectations, and readings on financial & international developments.
“The committee will carefully monitor actual & expected inflation developments relative to its symmetric inflation goal. The committee expects that economic conditions will evolve in a manner that will warrant 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.
Treasuries selldown programme
“In October, the committee will initiate the balance sheet normalisation programme described in the June 2017 addendum to the committee’s policy normalisation principles & plans.”
In the June statement, the committee anticipated an initial cap of $US6 billion/month in treasury repayments, rising in $US6 billion steps at 3-month intervals over 12 months until it reaches $US30 billion/month.
For payments of principal that the Fed receives from its holdings of agency debt & mortgage-backed securities, the committee anticipated in June that the cap would be $US4 billion/month initially and would increase in $US4 billion steps at 3-month intervals over 12 months until it reached $US20 billion/month.
Today: Federal Reserve Board & Federal open market committee release economic projections from the September 19-20 FOMC meeting
14 June 2017: FOMC issues addendum to the policy normalisation principles & plans
Attribution: Fed release.