FOMC Press Conference June 14, 2017 | Summary and Q&A

TL;DR

The Federal Reserve has raised interest rates by 0.25% and provided details on its plan to reduce the size of its balance sheet.

Key Insights

• ❓ The Federal Reserve remains committed to its objectives of maximum employment and price stability.
• ❓ Inflation has remained below the 2% objective due to one-off reductions in certain price categories, but the Federal Reserve expects it to move up in the future.
• 🌱 The Federal Reserve plans to gradually reduce the size of its balance sheet to levels below recent years but larger than before the financial crisis.

Transcript

CHAIR YELLEN. Good afternoon. Before I get started, I just want to say that our thoughts are with those who were injured this morning. Today the Federal Open Market Committee decided to raise the target range for the federal funds rate by 1/4 percentage point, bringing it to 1 to 1-1/4 percent. Our decision to make another gradual reduction in the ... Read More

Questions & Answers

Q: What factors influenced the decision to raise interest rates?

The decision to raise interest rates was based on the progress of the economy towards maximum employment and price stability objectives, as well as solid fundamentals such as improved job market and consumer sentiment.

Q: Why has inflation remained below the 2% objective?

The recent lower readings on inflation have been driven by one-off reductions in certain price categories, although with employment near its maximum sustainable level, the Federal Reserve expects inflation to move up and stabilize around 2% over the next few years.

Q: How will the Federal Reserve reduce the size of its balance sheet?

The Federal Reserve plans to gradually decrease reinvestments in Treasury securities and principal payments from agency debt and mortgage-backed securities. The process will be conducted in a gradual and predictable manner to avoid market strains and is expected to reduce the outstanding stock of reserves.

Q: What are the risks associated with reducing the balance sheet and raising interest rates?

The Federal Reserve will closely monitor incoming data on inflation and the economy to assess whether it is appropriate to implement the balance sheet reduction plan and raise interest rates further. The Federal Reserve is also prepared to adjust its policy if economic conditions warrant a more accommodative stance.

Summary & Key Takeaways

• The Federal Open Market Committee decided to raise the target range for the federal funds rate by 0.25%, reflecting the progress of the economy towards maximum employment and price stability.

• The economy has shown a moderate pace of growth so far this year, with household spending and business investment improving, and exports strengthening.

• The labor market has continued to strengthen, with job gains averaging 160,000 per month, although inflation has remained below the 2% objective.