Information received since the Federal Open Market Committee met in MarchMay suggests that economic activity has been expanding at a moderate pace. Labor market conditions have shown somefurther
improvement in recent months, on balance, but the unemployment rate
remains elevated. Household spending and business fixed investment
advanced, and the housing sector has strengthened further, but fiscal
policy is restraining economic growth. InflationPartly reflecting transitory influences, inflation has been running somewhat below the Committee's longer-run objective, apart from temporary variations that largely reflect fluctuations in energy prices. Longer-termbut longer-term inflation expectations have remained stable.
Consistent with its statutory mandate, the Committee seeks to foster
maximum employment and price stability. The Committee expects that, with
appropriate policy accommodation, economic growth will proceed at a
moderate pace and the unemployment rate will gradually decline toward
levels the Committee judges consistent with its dual mandate. The
Committee continues to seesees the downside risks to the economic outlook.outlook for the economy and the labor market as having diminished since the fall. The Committee also anticipates that inflation over the medium term likely will run at or below its 2 percent objective.
To support a stronger economic recovery and to help ensure that
inflation, over time, is at the rate most consistent with its dual
mandate, the Committee decided to continue purchasing additional agency
mortgage-backed securities at a pace of $40 billion per month and
longer-term Treasury securities at a pace of $45 billion per month. The
Committee is maintaining its existing policy of reinvesting principal
payments from its holdings of agency debt and agency mortgage-backed
securities in agency mortgage-backed securities and of rolling over
maturing Treasury securities at auction. Taken together, these actions
should maintain downward pressure on longer-term interest rates, support
mortgage markets, and help to make broader financial conditions more
accommodative.
The Committee will closely monitor incoming information on economic and
financial developments in coming months. The Committee will continue its
purchases of Treasury and agency mortgage-backed securities, and employ
its other policy tools as appropriate, until the outlook for the labor
market has improved substantially in a context of price stability. The
Committee is prepared to increase or reduce the pace of its purchases to
maintain appropriate policy accommodation as the outlook for the labor
market or inflation changes. In determining the size, pace, and
composition of its asset purchases, the Committee will continue to take
appropriate account of the likely efficacy and costs of such purchases
as well as the extent of progress toward its economic objectives.
To support continued progress toward maximum employment and price
stability, the Committee expects that a highly accommodative stance of
monetary policy will remain appropriate for a considerable time after
the asset purchase program ends and the economic recovery strengthens.
In particular, the Committee decided to keep the target range for the
federal funds rate at 0 to 1/4 percent and currently anticipates that
this exceptionally low range for the federal funds rate will be
appropriate at least as long as the unemployment rate remains above
6-1/2 percent, inflation between one and two years ahead is projected to
be no more than a half percentage point above the Committee's 2 percent
longer-run goal, and longer-term inflation expectations continue to be
well anchored. In determining how long to maintain a highly
accommodative stance of monetary policy, the Committee will also
consider other information, including additional measures of labor
market conditions, indicators of inflation pressures and inflation
expectations, and readings on financial developments. When the Committee
decides to begin to remove policy accommodation, it will take a
balanced approach consistent with its longer-run goals of maximum
employment and inflation of 2 percent.