Federal Reserve Leaves Interest Rates Unchanged

Story by Bloomberg
Written by Christopher Condon

Federal Reserve officials left interest rates unchanged, opting to delay an increase amid stubbornly low inflation, an uncertain outlook for global growth and recent financial-market turmoil.

“Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term,” the Federal Open Market Committee said in a statement Thursday in Washington.

In holding their benchmark federal funds rate at zero to 0.25 percent, policy makers showed they are still not convinced inflation will move gradually back to their 2 percent target, despite continued gains in the labor market. Unemployment in August fell to 5.1 percent, its lowest level since April 2008.

“On balance, labor market indicators show that underutilization of labor resources has diminished since early this year,” officials said.

The yield on the 10-year U.S. Treasury note fell to 2.23 percent at 2:10 p.m. in New York following the release of the statement from 2.30 percent late on Wednesday. The S&P 500 pared earlier gains.

Lacker Dissents

Richmond Fed President Jeffrey Lacker dissented, saying he preferred to raise the target rate by 0.25 percentage point.

Many economists have worried that recent losses in China’s equity markets reflect deeper worries over growth prospects for the world’s second-biggest economy. Slowing demand from China has also helped trigger a global slump in commodity costs, adding downward pressure to prices in the U.S.

Inflation, as measured by the Fed’s preferred gauge, was 0.3 percent in the 12 months through July and has lingered below 2 percent for more than three years.

The committee repeated that it will raise rates when it has seen "some further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term."

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FEDERAL RESERVE FULL STATEMENT:

Press Release

Release Date: September 17, 2015
For immediate release

Information received since the Federal Open Market Committee met in July suggests that economic activity is expanding at a moderate pace. Household spending and business fixed investment have been increasing moderately, and the housing sector has improved further; however, net exports have been soft. The labor market continued to improve, with solid job gains and declining unemployment. On balance, labor market indicators show that underutilization of labor resources has diminished since early this year. Inflation has continued to run below the Committee's longer-run objective, partly reflecting declines in energy prices and in prices of non-energy imports. Market-based measures of inflation compensation moved lower; survey-based measures of longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term. Nonetheless, the Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators continuing to move toward levels the Committee judges consistent with its dual mandate. The Committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced but is monitoring developments abroad. Inflation is anticipated to remain near its recent low level in the near term but the Committee expects inflation to rise gradually toward 2 percent over the medium term as the labor market improves further and the transitory effects of declines in energy and import prices dissipate. The Committee continues to monitor inflation developments closely.

To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate. In determining how long to maintain this target range, the Committee will assess progress--both realized and expected--toward 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. The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen some further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term.

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. This policy, by keeping the Committee's holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.

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. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.

Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Charles L. Evans; Stanley Fischer; Dennis P. Lockhart; Jerome H. Powell; Daniel K. Tarullo; and John C. Williams. Voting against the action was Jeffrey M. Lacker, who preferred to raise the target range for the federal funds rate by 25 basis points at this meeting.