They keep hammering home the point, though, that they’d like to see inflation rise to 2%. One of the ways they’ll get there is by raising interest rates.
Below is this month’s Fed press release. My comments are in bold.
Information received since the Federal Open Market Committee met in June indicates that economic activity has been expanding moderately in recent months. Growth in household spending has been moderate and the housing sector has shown additional improvement, however, business fixed investment and net exports stayed soft. The labor market continued to improve, with solid job gains and declining unemployment. On balance, a range of labor market indicators suggests that underutilization of labor resources has diminished since early this year. Inflation continued to run below the Committee’s longer-run objective, partly reflecting earlier declines in energy prices and decreasing prices of non-energy imports. Market-based measures of inflation compensation remain low; survey‑based measures of longer-term inflation expectations have remained stable.
General Fed happiness. In this paragraph, the Fed tells us that they feel the economy is continuing to do better. Consumers (you and I) are spending more money, and the housing market is getting better too. The jobs market is doing better – more peeps are working. But, businesses seem to be spending less, and they aren’t selling as much stuff to other countries (exports). And prices (the Fed always worries about prices going up too fast or not fast enough) are actually lower than they wish they were. (The Fed likes a little inflation; it gives consumers a reason to spend now because if you wait, the stuff will cost more.)
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators continuing to move toward levels the Committee judges consistent with its dual mandate. The Committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced. Inflation is anticipated to remain near its recent low level in the near term, but the Committee expects inflation to rise gradually toward 2% over the medium term as the labor market improves further and the transitory effects of earlier declines in energy and import prices dissipate. The Committee continues to monitor inflation developments closely.
Here’s where the Fed gives us their job description. They love to tell us that they try to keep as many people working while at the same time keeping prices under control. The Fed pats themselves on the back this time saying they think they’ve stuck the landing. They think the balance between jobs and prices is right on target.
To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0%–0.25% target range for the federal funds rate remains appropriate. In determining how long to maintain this target range, the Committee will assess progress – both realized and expected – toward its objectives of maximum employment and 2% 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 anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen some further improvement in the labor market and is reasonably confident that inflation will move back to its 2% objective over the medium term.
Here’s where the Fed tells us they’re going to leave short-term rates alone this time (exactly as they have for the past six years). They let us know that they’re watching a lot of stuff (jobs, prices, etc.) to decide when to raise rates. Why do you think they feel they need to tell us that? What do they think we think they’re looking at to make that decision – the Tigers win/loss record? The winner of “The Voice”?
The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. This policy, by keeping the Committee’s holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.
This is nerdy but important. The Fed owns more than a trillion (yep – trillion) dollars of mortgage bonds. As we Americans make our mortgage payments, the Fed takes the principal repayments and uses that money to buy more mortgage bonds. This keeps mortgage rates low. We like that. That makes us happy.
When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2%. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.
Here the Fed is saying they won’t lose their minds and do anything rash. They’ll take a “balanced approach” when it comes time to raise short-term rates. Well – that’s nice.
Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Charles L. Evans; Stanley Fischer; Jeffrey M. Lacker; Dennis P. Lockhart; Jerome H. Powell; Daniel K. Tarullo; and John C. Williams.
All the Fed agreed to keep rates low!
If so, subscribe now for tips on home, money, and life delivered straight to your inbox.