After the conclusion of its latest policy meeting over the past few days, the Federal Reserve has released a statement outlining its assessment of the US economy. While economic indicators are generally positive, the Fed – as expected – says that it will maintain the current low interest rate for the time being.
Since the last Federal Open Market Committee meeting in June 2015, the statement claims that “economic activity has been expanding moderately in recent months.” It notes that there has been an improvement in the housing sector and moderate growth in household spending. The labour market is noted as improving, with increased job gains and declining unemployment. Likewise, the Fed says that “a range of labour market indicators suggests that underutilization of labour resources has diminished since early this year.”
Inflation is expected to remain low in the near term
There does, however, remain a few concerns. Business fixed investment and net exports are noted as staying soft, while inflation is currently running below the Fed’s longer-run objective. This is blamed on a fall in energy prices and “decreasing prices of non-energy imports.” Inflation is expected to remain low in the near term, but anticipated “to rise gradually toward two percent over the medium term as the labour market improves further and the transitory effects of earlier declines in energy and import prices dissipate.”
Therefore, with its eyes on maximum employment and two percent inflation, the Fed concludes that the current “zero to a quarter percent target range for the federal funds rate remains appropriate.” The Fed feels it appropriate to raise rates only after further improvements in the labour market and when it is confident that inflation will “move back to its two percent objective over the medium term.” However, it is further noted that even after employment and inflation targets are met, wider economic conditions may still result in lower than usual federal fund rates.
