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Wednesday, January 28, 2015

FOMC: Strong Job Gains but Declining Inflation

The Federal Open Market Committee’s (FOMC) plans for increasing the target range for the federal funds rate is consistent with the December meeting, as expected. In its January 28 statement, the Committee continues to say that it can be patient in beginning to normalize the stance of monetary policy.

However, there are some changes to the language regarding the labor market and inflation, which make up the FOMC’s dual mandate. The FOMC’s outlook for economic expansion appears to be improving, as the statement now refers to the pace of expansion as “solid” rather than “moderate.” Furthermore, the Committee characterized job growth as “strong” compared with the “solid” job gains seen in the December meeting. But as the labor market improves, declines in energy prices, while boosting household purchasing power, led inflation to decline “substantially.” Despite the recent decline, the FOMC still expects inflation to rise gradually toward 2% over the medium term, once again calling the effects of lower energy prices “transitory.”

The three Committee members to vote against the FOMC monetary policy in December, Richard W. Fisher of the Dallas Fed, Narayana Kocherlakota of the Minneapolis Fed and Charles I. Plosser of the Philadelphia Fed, are not on the Committee for 2015.

Read the FOMC statement.

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