FOMC Press Conference March 16, 2016 | Summary and Q&A

TL;DR

The Federal Reserve has decided to keep its accommodative policy stance, reflecting both the outlook for the US economy and the risks associated with global economic and financial developments.

Key Insights

• 🪛 The Federal Reserve expects gradual adjustments in the stance of monetary policy to continue driving moderate economic growth and labor market improvement.
• 😣 The Committee's inflation outlook rests on the assumption that longer-run inflation expectations remain well anchored.
• 😐 There is uncertainty regarding the evolution of the neutral federal funds rate, which may be influenced by factors such as developments abroad and subdued household formation and productivity growth.
• 🫢 Global economic and financial developments pose risks to the US economy, but the Committee believes the US economy has been resilient in the face of these shocks.

Transcript

CHAIR YELLEN. Good afternoon. Today the Federal Open Market Committee decided to maintain the target range for the federal funds rate at 1/4 to 1/2 percent. Our decision to keep this accommodative policy stance reflects both our assessment of the economic outlook and the risks associated with that outlook. The Committee's baseline expectations for ... Read More

Questions & Answers

Q: Why did the Federal Reserve decide to maintain its accommodative policy stance?

The Federal Reserve made this decision due to both its assessment of the economic outlook and the risks associated with global economic and financial developments. Global economic conditions continue to pose risks and the Committee believed it would be prudent to maintain the current policy stance.

Q: What factors are contributing to the strengthening of the labor market?

The labor market has benefited from job gains averaging nearly 230,000 per month over the past three months. The unemployment rate is also in line with estimates of its longer-run normal level. Additionally, the labor force participation rate has increased, indicating more people are actively looking for work as job prospects improve.

Q: Why is business investment weak?

Business investment has been weak partly due to reductions in oil drilling as a result of low oil prices. The decline in oil prices has also affected net exports, as foreign growth remains subdued and the dollar has appreciated.

Q: What is the outlook for inflation?

Overall consumer price inflation has stepped up and core inflation has also picked up, although it remains to be seen if this firming will be sustained. Factors such as declines in energy prices and the appreciation of the dollar may continue to weigh on overall consumer prices. However, with further strengthening in the labor market, the Committee expects inflation to rise to 2 percent over the next two to three years.

Summary & Key Takeaways

• The labor market continues to strengthen, with job gains averaging nearly 230,000 per month over the past three months.

• While household spending is expanding at a moderate rate, business investment remains weak and net exports are soft due to subdued foreign growth and a strong dollar.

• The Committee expects that economic activity will continue to expand at a moderate pace, with ongoing growth and stronger labor market conditions underpinning the inflation outlook.