17 June 2015

FOMC June 2015 Statement

Net-net, the Fed today said that while the first quarter was lousy, the second quarter was less lousy, and showed some sparks of growth if you looked hard enough.

The Fed is just itching to raise rates this year, by at least .25%.  

It has little to do with the economy per se, unless the wheels more obviously start falling off The Recovery™.

Let us not forget that, in the time honoured tradition of all pampered bureaucrats, the Fed would like to engage in some serious CYA (cover your ass) activity now before the next crisis unfolds due to their policy errors, which are continuing and many, and will not be resolved by higher interest rates.

It is a policy thing.  The Fed would like to get off the zero bound, both to end the speculation about when they will do it, and further, to give themselves some cushion to cut rates in case the current asset bubble pops.

I will stick with my long standing forecast that the Fed will raise by 25 basis points at least once this year, and maybe twice, unless the world economy really hits the skids so that even mom and pop at home notice it.  

They will not wish to be raising in a Presidential election year, but need to get off ZIRP for their own policy purposes by pulling the trigger on that at least once.

The strong dollar is stifling The Recovery™ so the raising of rates has to be done carefully.

Then there is the turmoil in Europe and the other asset bubble in Asia.

Release Date: June 17, 2015
For immediate release

Information received since the Federal Open Market Committee met in April suggests that economic activity has been expanding moderately after having changed little during the first quarter. The pace of job gains picked up while the unemployment rate remained steady. On balance, a range of labor market indicators suggests that underutilization of labor resources diminished somewhat. Growth in household spending has been moderate and the housing sector has shown some improvement; however, business fixed investment and net exports stayed soft. Inflation continued to run below the Committee's longer-run objective, partly reflecting earlier declines in energy prices and decreasing prices of non-energy imports; energy prices appear to have stabilized. Market-based measures of inflation compensation remain low; 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. 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. 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 earlier 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 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; Jeffrey M. Lacker; Dennis P. Lockhart; Jerome H. Powell; Daniel K. Tarullo; and John C. Williams.