(NOTE: removals are struck-through and additions are underlined)

Information received since the Federal Open Market Committee met in OctoberDecember suggests that labor market conditions improved further even as economic activity has been expanding at a moderate pace.growth slowed late last year. Household spending and business fixed investment have been increasing at solidmoderate rates in recent months, and the housing sector has improved further; however, net exports have been soft.soft and inventory investment slowed. A range of recent labor market indicators, including ongoingstrong job gains and declining unemployment, shows further improvement and confirms thatgains, points to some additional decline in underutilization of labor resources has diminished appreciably since early this year.resources. Inflation has continued to run below the Committee's 2 percent longer-run objective, partly reflecting declines in energy prices and in prices of non-energy imports. Market-based measures of inflation compensation remain low; somedeclined further; survey-based measures of longer-term inflation expectations have edged down.are little changed, on balance, in recent months.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee currently expects that, with gradual adjustments in the stance of monetary policy, economic activity will continue to expand at a moderate pace and labor market indicators will continue to strengthen. Overall, taking into account domestic and international developments, the Committee sees the risks to the outlook for both economic activity and the labor market as balanced. Inflation is expected to remain low in the near term, in part because of the further declines in energy prices, but to rise to 2 percent over the medium term as the transitory effects of declines in energy and import prices dissipate and the labor market strengthens further. The Committee continues to monitor inflationis closely monitoring global economic and financial developments closely.and is assessing their implications for the labor market and inflation, and for the balance of risks to the outlook.

The Committee judges that there has been considerable improvement in labor market conditions this year, and it is reasonably confident that inflation will rise, over the medium term, to its 2 percent objective. GivenGiven the economic outlook, and recognizing the time it takes for policy actions to affect future economic outcomes, the Committee decided to raisemaintain the target range for the federal funds rate toat 1/4 to 1/2 percent. The stance of monetary policy remains accommodative after this increase,accommodative, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation.

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. In light of the current shortfall of inflation from 2 percent, the Committee will carefully monitor actual and expected progress toward its inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.

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, and it anticipates doing so until normalization of the level of the federal funds rate is well under way. This policy, by keeping the Committee's holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.