Today, the Federal Open Market Committee announced in a press release that it has decided to further postpone raising federal rates until inflation improves. This meeting is the fourth of eight meetings the committee will have this year to discuss market developments, economic conditions, and the highly anticipated federal funds rate increase.
"To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate," the Committee said. "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 percent inflation."
The Committee noted that economic activity is expanding at a moderate pace after very little change was recorded in the first quarter since their April meeting. Meanwhile, job gains increased and unemployment rate remained little changed. Household spending growth has been moderate and the housing sector has shown improvement. Inflation is still below the Committee's desired level of 2 percent, placing a hold on the rate increase.
"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 percent," the Committee said. "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."
In May, a combined session of the Federal Open Market Committee (FOMC) and the Board of Governors of the Federal Reserve System, the manager of the System Open Market Account (SOMA), held a meeting to discuss domestic and foreign financial market developments and the Federal Reserve’s Balance Sheet. The FOMC released minutes documenting the meeting.
This meeting comes three weeks after an previous meeting in late April, where Federal Reserve officials doubted that they would be able to raise short-term interest rates by the next mid-June meeting due to low economic growth.
Those who attended the April policy meeting believed that the rise and fall of factors such as, job gains, unemployment, household spending, income, business investments, and energy prices all had an effect on the economy, according to the press release from the meeting. Fed officials are taking extra precaution before lifting interest rates to ensure that the economy is on track for growth, and that their goal for maximum employment and a 2 percent inflation goal is met.
“A few anticipated that the information that would accrue by the time of the June meeting would likely indicate sufficient improvement in the economic outlook to lead the Committee to judge that its conditions for beginning policy firming had been met,” the meeting minutes said. “Many participants, however, thought it unlikely that the data available in June would provide sufficient confirmation that the conditions for raising the target range for the federal funds rate had been satisfied, although they generally did not rule out this possibility.”