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Federal Reserve Press Release in Plain English 23.0 - Quicken Loans Zing Blog

The Federal Reserve did what everyone expected and raised short-term interest rates for the fifth time since the recession in 2008. The market pretty much priced this in and mortgage rates are remaining pretty low.

If you’re interested and in the market for a mortgage, it remains a great time to lock your rate.

My comments are below in bold.

Information received since the Federal Open Market Committee met in November indicates that the labor market has continued to strengthen and that economic activity has been rising at a solid rate. Averaging through hurricane-related fluctuations, job gains have been solid, and the unemployment rate declined further. 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, both overall inflation and inflation for items other than food and energy have declined this year and are running below 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance.

This is the “report card” paragraph the Fed gives the US economy. The Fed gives the economy a B+ for growing, despite some big hurricanes. Household spending and business spending get a solid B. Inflation gets a B as well. Another solid report card just in time for the holidays!

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Hurricane-related disruptions and rebuilding have affected economic activity, employment, and inflation in recent months but have not materially altered the outlook for the national economy. 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 remain strong. 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. Near-term risks to the economic outlook appear roughly balanced, but the Committee is monitoring inflation developments closely.

This paragraph reiterates that the Fed’s statutory mandate is to balance job growth and prices (inflation). The Fed feels pretty good about the job the committee is doing, and it always lets us know that it will “monitor inflation developments closely.” Sweet.

In view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 1-1/4 to 1‑1/2 percent. The stance of monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustained return to 2 percent inflation.

The Fed increased short-term rates by 0.25%. The rate the committee controls, called the “federal funds rate,” now stands at 1.5%.  After spending about seven years at almost 0%, short-term rates have been slowly rising (although longer-term rates, like mortgage rates, have remained low for the most part). This should give you an idea of how great 1.5% is. This chart doesn’t show it, but short-term rates were as high as 20% in early 1980!

Federal Reserve Press Release in Plain English – December 2017 - Quicken Loans Zing Blog

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.

This is where the Fed tells us it will keep monitoring the economy, and the committee tells us it thinks it will continue to raise short term rates “gradually,” and that it thinks rates will remain historically low for quite a while.

Voting for the FOMC monetary policy action were Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Patrick Harker; Robert S. Kaplan; Jerome H. Powell; and Randal K. Quarles. Voting against the action were Charles L. Evans and Neel Kashkari, who preferred at this meeting to maintain the existing target range for the federal funds rate

All the Fed did NOT agree! Charles Evans and Neel Kashkari both wanted the Fed to leave short-term rates at 1.25% rather than increase them.

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