FOMC June 2015 Press Conference Notes

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Conditions for rate increase not yet achieved

“The Committee continues to judge that the first increase in the federal funds rate will be appropriate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term. At our meeting that ended today, the Committee concluded that these conditions have not yet been achieved.”

Importance of initial increase should not be overstated

“Let me emphasize that the importance of the initial increase should not be overstated: The stance of monetary policy will likely remain highly accommodative for quite some time after the initial increase in the federal funds rate in order to support continued progress toward our objectives of maximum employment and 2 percent inflation”

There is room for further improvement in labor markets

“it seems likely that some cyclical weakness in the labor market remains: The participation rate remains below most estimates of its underlying trend, involuntary part-time employment remains elevated, and wage growth remains relatively subdued. So, although progress clearly has been achieved, room for further improvement remains”

While the disappointing economic performance was transitory, we’d like to see more evidence that growth will be sustained

” While the Committee views the disappointing economic performance in the first quarter as largely transitory, my colleagues and I would like to see more decisive evidence that a moderate pace of economic growth will be sustained”

Residual effects of the financial crisis are still constraining spending

“Participants provided a number of explanations for the federal funds rate running below its normal longer-run level at that time. These included, in particular, the residual
effects of the financial crisis, which are likely to continue to constrain spending and credit availability for some time. ”

The entire trajectory of policy is what should matter

” I want to emphasize sometimes too much attention is placed on the timing of the first
increase in the federal funds rate. And what should matter to market participants is the entire trajectory, the entire expected trajectory of policy”

We’re not going to move rates mechanically

“As I’ve emphasized, previously we have–absolutely do not expect to follow any mechanical 25 basis points a meeting, 25 basis point every other meeting. No plan to follow any type of mechanical approach to raising the federal funds rate. We will evaluate incoming conditions and move in the manner that we regard as appropriate. ”

There’s a case that rates should have been raised faster in 04-06

” I think with the benefit of hindsight, it might have been better be raise rates more rapidly or more during the 2004 to 2006 cycle. You know, I’m not certain of that judgment but I think there’s a case to be made. ”

Most participants anticipate that a rate increase will be appropriate this year

” clearly, most participants are anticipating that a rate increase this year will be appropriate. Now, that assumes, as you can see that they’re expecting a pickup in growth in the second half of this year and further improvement in labor market conditions. And we will all be we–we will be making decisions however that depend on the actual data that we see in the months ahead”

We’ take international spillovers into account, but we’ have to make policy on a US basis

“With respect to international spillovers, this is something that we have been long attentive to. Obviously, we have to put in place in the–a policy that is appropriate to evolving conditions in the US economy, but we can’t promise that there will not be volatility when we make a decision to raise rates”

It’s hard to have great confidence in predicting how markets will react to our decisions

” I think our experience suggest that it’s hard to have great confidence in predicting what the market reaction will be to Fed decisions, and there have been surprises in the past.”

We’re all reacting to incoming data. You can see that in the daily market reactions

“We will be responding to incoming data, we’ve tried to make that clear. And I think it’s
clear that the market is also responding to incoming data and you can see that in daily-market reactions to surprises in the economic data”

Not totally clear why consumers aren’t spending their energy savings

“There are questions at this point about just how much impact we’ve seen of lower energy
prices on consumer spending. The decline in oil prices translates into an improvement in
household income on average of something like $700 per household, and I’m not convinced yet by the data that we have seen the kind of response to that that I would ultimately expect. And I think it’s hard to know at this point whether or not that reflects a very cautious consumer that is eager to add to savings and to work down borrowing, or in part some survey evidence suggests the consumers are not yet confident that the improvement they’ve seen a decline in their need to spend for energy for gasoline that that’s going to be something that will be permanent. ”

It’s a good thing if we raise rates

“let me say to my mind the most important positive is that it–I believe a decision to raise rates would signify very clearly that the U.S. economy has made great progress in recovering from the trauma of the financial crisis and that we’re in a different place. I
think, hopefully, that would be something would be confidence-inducing for many households
and businesses.”

This has been a tough period for savers

“From the point of view of savers, of course this has been a very difficult period. Many
retirees, and I hear from some almost every day, are really suffering from low rates that they had anticipated would bolster their retirement income. This, you know, obviously has been one of the adverse consequences of a period of low rates.”

We have good reason for keeping rates where they are. It’s our mandate.

“The–you know, we have a good reason for having kept rates at the levels that we have.
We–our charge from Congress is to pursue the goals of maximum employment and price
stability. That’s what we’ve been doing, and obviously there are benefits from a strong economy to every household in the economy, including savers, from having a better job market and a more secure economy. But, yes, when the time comes for us to raise rates, I think there will be some benefits that flow through to savers.”

Obviously it’s not an ironclad guarantee, but we expect rates to rise this year

“Obviously, we have to–you know, there can be surprises that might not happen. It’s not
an ironclad guarantee, but we anticipate that that’s something that will be appropriate later this year. “