Below is the Federal Open Market Committee’s statement from its September meeting, annotated by Cardiff Garcia, US editor of FT Alphaville.
Select the highlights to read the annotations
Information received since the Federal Open Market Committee met in July indicates that the labor 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 and energy prices have declined this year and are running below 2 percent.The first paragraph describing economic developments since the last meeting is nearly unchanged from the last statement, but the language about low inflation has changed mildly from “somewhat below” the 2% target to simply “below” it. 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 and price stability. Hurricanes Harvey, Irma, and Maria have devastated many communities, inflicting severe hardship. Storm-related disruptions and 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 labor market conditions will strengthen somewhat further. Higher prices for gasoline and 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 percent in the near term but to stabilize around the Committee's 2 percent objective over the medium term.The Fed is signaling that its policy judgments won’t be affected by what it views as a temporary bump in inflation because of the hurricanes. This will matter if, in the coming months, these transitory increases raise inflation nearer to 2%. Near-term risks to the economic outlook appear roughly balanced, but the Committee is monitoring inflation developments closely.
In view of realized and expected labor market conditions and inflation, the Committee decided to maintain the target range for the federal funds rate at 1 to 1-1/4 percent.No change in rates was expected at this meeting. The odds of a rate rise at the December meeting are highly uncertain, having hit 50% according to Fed Funds futures contracts earlier this week. The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labor market conditions and a sustained return to 2 percent inflation.
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 objectives of maximum employment and 2 percent inflation. 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. The Committee will carefully monitor actual and 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.
In October, the Committee will initiate the balance sheet normalization program described in the June 2017 Addendum to the Committee's Policy Normalization Principles and Plans.As expected, the Fed’s balance sheet will soon begin to shrink as the proceeds from some of the maturing debt in its portfolio is not reinvested, allowed instead to runoff. The Fed has implemented caps on just how much debt each month it will allow to runoff, making the shrinkage in its Treasury holdings highly predictable. Less predictable is how quickly the MBS holdings will shrink. How quickly these securities mature depends on the pace at which Americans will prepay their mortgage debt.
Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Charles L. Evans; Stanley Fischer; Patrick Harker; Robert S. Kaplan; Neel Kashkari; and Jerome H. Powell.Unanimous support. This meeting is expected to be the last at which Stan Fischer votes. Neel Kashkari had dissented from the prior statement.