FOMC Press Conference September 18, 2013 | Summary and Q&A

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September 18, 2013
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Federal Reserve
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FOMC Press Conference September 18, 2013

TL;DR

The Federal Reserve has decided to keep interest rates and asset purchases unchanged at its latest meeting due to concerns about the tightening of financial conditions and ongoing declines in labor force participation.

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Key Insights

  • ☠️ Despite improvements in labor market conditions, the unemployment rate remains high and long-term unemployment and underemployment persist.
  • 🙈 The tightening of financial conditions and federal fiscal policy are seen as restraints on growth and sources of downside risk.
  • 🏃 Inflation has been running below the Committee's target, but recent data shows moderate increases and expectations remain well anchored.
  • ☠️ The Committee's projections indicate expectations of moderate economic growth, gradual progress towards levels of unemployment and inflation consistent with their mandate, and the need for a patient policy approach keeping interest rates below their longer-run normal value for some time.

Transcript

CHAIRMAN BERNANKE. Good afternoon. The Federal Open Market Committee (FOMC) concluded a two-day meeting earlier today. As you already know from our statement, the Committee decided today to keep the target range for the federal funds rate at 0 to ¼ percent and to make no change in either its asset purchase program or its forward guidance regarding ... Read More

Questions & Answers

Q: Why did the Federal Reserve decide to keep interest rates and asset purchases unchanged?

The Committee is concerned about the tightening of financial conditions and the ongoing decline in labor force participation, as well as the impact of federal fiscal policy on growth. They concluded that the economic data does not yet provide sufficient confirmation of their outlook for the labor market to warrant a reduction in asset purchases.

Q: What are the projections for economic growth and inflation by the Committee?

The central tendency of projections for economic growth is 2.0 to 2.3 percent for 2013, rising to 2.9 to 3.1 percent in 2014 and 2.5 to 3.3 percent in 2016. For inflation, the central tendency of projections is 1.1 to 1.2 percent for this year, 1.3 to 1.8 percent for 2014, and 1.7 to 2.0 percent in 2016.

Q: How will the Federal Reserve's asset purchases be adjusted in the future?

The Committee is considering a gradual reduction in asset purchases once there is sufficient confirmation of improving labor market conditions and inflation moving towards its target. The pace of asset purchases will be determined by the Committee's assessment of the economic outlook and the likely efficacy and costs of the program.

Q: How will the Federal Reserve manage expectations and market reactions when they do decide to reduce asset purchases?

Clear communication is important in managing expectations and market reactions. The Committee will continue to provide guidance on how the pace of asset purchases might be adjusted over time and will assess incoming information to determine if ongoing improvement in labor market conditions and inflation moving back towards target are consistent with reducing the pace of asset purchases.

Summary & Key Takeaways

  • The Federal Open Market Committee (FOMC) has decided to maintain the target range for federal funds rate at 0 to ¼ percent and make no changes to its asset purchase program or forward guidance regarding the rate target.

  • Economic growth has been moderate, with improvements in labor market conditions, but the unemployment rate remains high and long-term unemployment and underemployment persist. The tightening of financial conditions and federal fiscal policy are also seen as restraints on growth.

  • Inflation has been running below the Committee's target of 2 percent, but recent data shows moderate increases. The Committee anticipates inflation will gradually move back towards target as longer-term expectations remain well anchored.

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