FOMC Meeting: Fed Backing Measures To Support 2% Inflation

FOMC Meeting: Fed Backing Measures To Support 2% Inflation
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The Federal Open Market Committee (FOMC) announced today that the Federal Reserve will continue its policy of purchasing longer-term Treasury securities of $45 billion per month, and mortgage-backed-securities of $40 billion per month to support a stronger economic recovery and to help ensure that the rate of inflation will be consistent with its dual mandate

FOMC Meeting: Fed Backing Measures To Support 2% Inflation

FOMC Explains Its Actions

The policy makers also decided to maintain an existing policy of reinvesting principal payments from its holdings of agency debt, and agency mortgage-backed securities, and rolling over maturing Treasury securities at auction. The FOMC explained that its actions should maintain a downward pressure on longer-term interest rates and support mortgage markets. The agency also expects broader financial conditions to become more accommodative.

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In its statement, the FOMC cited that the U.S. economy is growing at a moderate rate since its previous meeting. According to the committee, the labor market improved further in recent months, but it remains high; household spending and business fixed investment advanced, and the housing sector is becoming stronger. In addition, the committee said that inflation is below its longer-run objective, but expectations for longer-term inflation remained stable. The FOMC also noted that fiscal policy is holding back the country’s economic growth.

In its statement, the FOMC said, “…with appropriate policy accommodation, economic growth will proceed at a moderate pace and unemployment rate will gradually decline toward levels the Committee judges consistent with its dual mandate.”

The policy makers projected that inflation over the medium term will maintain around or below its target of 2 percent, and they perceive a reduction of risks to the economic outlook and labor market in the country.

“To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens,” according to the FOMC.

FOMC To Maintain Its Target Range For Federal Funds

The FOMC said it would maintain its target range for federal funds rate at 0 to .25 percent as long as the unemployment rates is above 6.5 percent. Inflation should not be higher than a half percentage point above its 2 percent longer-run goal, and expectations for longer-term inflation continue to be well-anchored.

The Committee emphasized it will determine the length of its highly accommodative stance of monetary policy by considering other information including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. The FOMC said it would take a balanced approach when it decides to start removing policy accommodation.

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