FOMC Press Conference December 14, 2016

TL;DR

Federal Reserve raises interest rates due to strong economic progress, focusing on job market and inflation.

Transcript

good afternoon today the Federal Open Market Committee decided to raise the target range for the federal funds rate by one-quarter percentage point bringing it to 1/2 to 3/4 percent in doing so my colleagues and I are recognizing the considerable progress the economy is made toward our dual objectives of maximum employment and price stability over ... Read More

Key Insights

• 🤨 Strong economic progress towards maximum employment and 2% inflation prompted the Federal Reserve to raise interest rates.
• ☠️ The labor market has shown significant improvement, with job gains and reductions in the unemployment rate to 4.6%.
• 🧑‍🤝‍🧑 Inflation remains below the 2% objective but is expected to reach the target over the next couple of years.
• 👻 The Federal Reserve plans to normalize its balance sheet gradually by allowing it to run off over time.
• ⚾ Market-based measures suggest inflation expectations remain anchored, influencing the Federal Reserve's 2% inflation objective.
• 💱 Fiscal policies, technological changes, and globalization impact manufacturing jobs and the overall economic outlook.
• 😮 The Federal Reserve's assessment of the economy includes factors like rising wage inequality and income inequality, urging policymakers to address these concerns.

Questions & Answers

Q: Why did the Federal Reserve decide to raise interest rates?

The Federal Reserve raised interest rates due to the considerable progress in the economy towards maximum employment and price stability goals, with job gains and inflation moving closer to the desired levels.

Q: How does the Federal Reserve view the current state of the labor market and inflation?

The Federal Reserve notes that the labor market has strengthened, with over 15 million jobs added since the Great Recession, and inflation is below the 2% objective but expected to rise in the coming years.

Q: What factors influenced the decision to raise interest rates slightly faster than anticipated?

Factors such as progress in job market conditions, a strengthening economy, inflation moving closer to the target, and market expectations of fiscal policies influenced the decision to raise interest rates.

Q: How does the Federal Reserve plan to normalize its balance sheet?

The Federal Reserve plans to allow its balance sheet to gradually run off by ceasing reinvestments of principal, primarily focusing on the size reduction through natural runoff instead of outright selling securities.

Summary & Key Takeaways

• Federal Reserve raises interest rates by 0.25% due to strong economic progress towards employment and inflation goals.

• The economy shows growth in household spending, business investment remains soft, and job gains continue at a solid pace.

• Inflation is below the 2% objective but expected to rise over the next couple of years, with longer-run expectations anchored.