FOMC anticipates inflation declining near term, rising gradually; 'funds rate' unchanged

This story appeared in Bank Digest.

Based on information it has received since it last met in December 2014, the Federal Open Market Committee states that while inflation is anticipated to decline further in the near term, the Committee expects inflation to rise gradually toward 2 percent over the medium term "as the labor market improves further and the transitory effects of lower energy prices and other factors dissipate." While the FOMC will continue to monitor inflation developments closely, the target range for the federal funds rate remains unchanged.

The FOMC reported that economic activity is "expanding at a solid pace." Labor market conditions have "improved further, with strong job gains and a lower unemployment rate." Moreover, labor market indicators generally suggest that underutilization of labor resources "continues to diminish." In addition, household spending "is rising moderately," and "recent declines in energy prices have boosted household purchasing power." Meanwhile, business fixed investment "is advancing," while recovery in the housing sector "remains slow."

Based on its current assessment, the FOMC stated that it "can be patient in beginning to normalize the stance of monetary policy." Consequently, while the FOMC continued to maintain the current, low-target range for the federal funds rate at 0 to .25 percent, the FOMC stated that it "will assess progress--both realized and expected--toward its objectives of maximum employment and 2 percent inflation." According to the FOMC, 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."