Wednesday, January 7, 2015

Federal Reserve Unlikely to Raise Rates Before April According to Minutes

Most FOMC participants agreed that the Committee “can be patient” and that it is “unlikely to begin the normalization process for the next couple of meetings.” This language provides more flexibility than the previous language, which had tied the beginning of normalization to the end of the asset purchase program, and indicates that the Committee may adjust its policy in response to incoming information. For the time being, the Committee agreed to maintain the target range for the federal funds rate at 0% to 0.25%.

Participants stressed that the language regarding the timing for raising rates should emphasize that an increase will be dependent on incoming data, in order to remove unwarranted concentration of market expectations on the narrow range of dates around mid-2015.

The Committee decided to maintain accommodative financial conditions by continuing to reinvest principal payments from its holdings of mortgage-backed securities and to roll over maturing Treasury securities at auction. Also, after the first increase of the federal funds rate, the policy will still be highly accommodative for a time.

The participants agreed that economic activity was expanding at a moderate pace. During the intermeeting period the labor market improved; participants judged that the underutilization of labor resources continued to diminish, and would continue moving toward the FOMC’s objective of maximum employment.

Inflation continued to run below the FOMC’s long-run objective of 2%, reflecting in part continued reductions in oil prices and falling imports. Participants generally anticipated that inflation would gradually rise toward 2% as the labor market improved and the transitory effect of lower energy prices and other factors dissipated. Some participants suggested that the recent strong economic data increased their confidence in the economic outlook going forward. While participants agreed that the lower energy prices have a net positive impact on the domestic economy, many thought that a further deterioration in the foreign economy could be a stronger headwind to domestic growth than they currently expected. Even though lower energy prices and the strong dollar will likely keep inflation below 2%, the Committee noted that it might be necessary to begin normalization while inflation is at current levels, although in that circumstance participants will want to be confident that long-term inflation expectations remain close to 2%.

Read the FOMC minutes.

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