FOMC Statement and Press Conference

June 17, 2015

Today’s statement and press conference identifies progress toward each of its mandates of full employment and 2.0% inflation in the PCE deflator occurred since its late April meeting but not enough to warrant an initial federal funds rate hike.  The funds target range remains at 0.0-0.25%.  A map was not supplied to know exactly when enough progress will happen to justify tightening.  The assessment of progress is looking at both what happens in the data but also what is expected to happen, which involves the forecasts made by policymakers.  The process has a sufficient subjective component to elude being pinned down mathematically.  Officials will know it’s time to act when they see it.  Almost all expect that to happen before end-2015.  Yellen continues to urge markets not to read to much into the first hike’s timing.  The process of normalization after that point is expected to be gradual, averaging about a percentage point in both 2016 and 2017 but with considerable margin of error around that size.  In 1994-5, the funds rate was hiked 300 basis points in the space of a year, and in 2004-6, it was raised at a pace 212.5 basis points per annum over a 24-month period. 

Copyright 2015, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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