June 16, 2016 (LBO) – The US Federal Reserve left its benchmark target for the federal funds rate steady at 0.25 to 0.50 percent, supporting further improvement in labor market conditions and a return to 2 percent inflation target.
The Fed, the central bank of the United States, said the pace of improvement in the labor market has slowed while growth in economic activity appears to have picked up.
“Although the unemployment rate has declined, job gains have diminished; growth in household spending has strengthened,” Fed said.
“Since the beginning of the year, the housing sector has continued to improve and the drag from net exports appears to have lessened, but business fixed investment has been soft.”
Inflation has continued to run below the 2 percent longer-run objective, partly reflecting earlier declines in energy prices and in prices of non-energy imports.
Market-based measures of inflation compensation declined; most survey-based measures of longer-term inflation expectations are little changed, on balance, in recent months.
Inflation is expected to remain low in the near term, in part because of earlier declines in energy prices, but to rise to 2 percent over the medium term as the transitory effects of past declines in energy and import prices dissipate and the labor market strengthens further.
The Fed said it continues to closely monitor inflation indicators and global economic and financial developments.
In determining the timing and size of future adjustments to the target range for the federal funds rate, the Fed will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation.
Fed said 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,” Fed said.
“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.