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Full text: US Fed raises key rate to 1.25%, expects economy to 'evolve'

Federal Reserve raised interest rates by 25 basis points for the second time in three months

BS Web Team  |  New Delhi 

Federal Reserve
Federal Reserve

The raised interest rates by 25 basis points on Wednesday for the second time in three months and said it would begin cutting its holdings of bonds and other securities this year, signaling its confidence in a growing US economy and strengthening job market.

Here is the full text of the Federal Reserve's statement:


Information received since the Federal Open Market Committee met in May indicates that the labor market has continued to strengthen and that economic activity has been rising moderately so far this year. Job gains have moderated but have been solid, on average, since the beginning of the year, and the rate has declined.

Household spending has picked up in recent months, and business fixed investment has continued to expand. On a 12-month basis, has declined recently and, like the measure excluding food and energy prices, is running somewhat below 2 per cent.

 
Market-based measures of compensation remain low; survey-based measures of longer-term expectations are little changed, on balance.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee continues to expect that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, and labor market conditions will strengthen somewhat further.

on a 12-month basis is expected to remain somewhat below 2 percent in the near term but to stabilise around the Committee’s 2 per cent objective over the medium term.

Near-term risks to the economic outlook appear roughly balanced, but the Committee is monitoring developments closely.

In view of realized and expected labour market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 1 to 1-1/4 percent. The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labor market conditions and a sustained return to 2 percent

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

This assessment will take into account a wide range of information, including measures of labour market conditions, indicators of pressures and expectations, and readings on financial and developments. The committee will carefully monitor actual and expected developments relative to its symmetric goal. The committee expects that economic conditions will evolve in a manner that will warrant 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.

The Committee currently expects to begin implementing a balance sheet normalisation program this year, provided that the economy evolves broadly as anticipated. This program, which would gradually reduce the Federal Reserve’s securities holdings by decreasing reinvestment of principal payments from those securities, is described in the accompanying addendum to the Committee’s Policy


Normalization Principles and Plans.

Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Charles L. Evans; Stanley Fischer; Patrick Harker; Robert S. Kaplan; and Jerome H. Powell. Voting against the action was Neel Kashkari, who preferred at this meeting to maintain the existing target range for the federal funds rate.

Decisions Regarding Monetary Policy Implementation

The has made the following decisions to implement the monetary policy stance announced by the Federal Open Market Committee in its statement on June 14, 2017:

• The Board of Governors of the System voted unanimously to raise the interest rate paid on required and excess reserve balances to 1.25 percent, effective June 15, 2017.

• As part of its policy decision, the Federal Open Market Committee voted to authorize and direct the Open Market Desk at the Bank of New York, until instructed otherwise, to execute transactions in the System Open Market Account in accordance with the following domestic policy directive:

“Effective June 15, 2017, the Federal Open Market Committee directs the Desk to undertake open market operations as necessary to maintain the federal funds rate in a target range of 1 to 1-1/4 percent, including overnight reverse repurchase operations (and reverse repurchase operations with maturities of more than one day when necessary to accommodate weekend, holiday, or similar trading conventions) at an offering rate of 1.00 per cent, in amounts limited only by the value of Treasury securities held outright in the System Open Market Account that are available for such operations and by a per-counterparty limit of $30 billion per day.

The Committee directs the Desk to continue rolling over maturing Treasury securities at auction and to continue reinvesting principal payments on all agency debt and agency mortgage-backed securities in agency mortgage-backed securities. The Committee also directs the Desk to engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve’s agency mortgage-backed securities transactions.”

• In a related action, the Board of Governors of the System voted unanimously to approve a 1/4 percentage point increase in the primary credit rate to 1.75 percent, effective June 15, 2017. In taking this action, the Board approved requests to establish that rate submitted by the Boards of Directors of the Banks of Boston, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, Kansas City, Dallas, and San Francisco.

This information will be updated as appropriate to reflect decisions of the Federal Open Market Committee or the Board of Governors regarding details of the Federal Reserve’s operational tools and approach used to implement monetary policy.


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