The Federal Open Market Committee (FOMC) concluded its June meeting. The standard summary statement, Chairwoman Yellen’s press conference, and the economic projections of the meeting participants contained no real surprises.
The statement expressed the committee’s confidence that economic activity is rebounding and the labor market is improving, although the unemployment rate remains elevated. The pace of asset purchases will be reduced by another $10 billion increment, to $35 billion per month, based on this continuing progress, with similar future reductions predicated on the economic recovery meeting expectations. The federal funds rate will remain at the current level for a “considerable time” after the end of asset purchases.
The economic projections of GDP growth in 2014 were reduced sharply compared to the projections at the March meeting, but growth was maintained in 2015 and 2016. Chairwoman Yellen explained at her press conference that this was basically incorporating the contraction of the first quarter rather than a loss of confidence in future growth. The projections of the unemployment rate were modestly lower while inflation projections were largely unchanged.
At the press conference Chairwoman Yellen emphasized that the first quarter contraction was based on transitory factors and early indications suggest that the economy is rebounding in the second quarter but underutilization in the labor market continues to be an issue of concern. Overall the committee remains confident enough in the outlook to continue reducing the asset purchase program.
Chairwoman Yellen also used the press conference to stress that the Fed’s policy stance has been and would continue to be data driven. The pace of asset purchase reductions and the timing and duration of increases to the federal funds rate are conditional on continuing improvement in the economic recovery. Neither of these policy tools is on a preset course.
Overall, the results of the meeting met expectations.