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The Federal Open Market Committee (FOMC) concluded its meeting on an optimistic note. There were no dissents, following three at the December 2014 meeting.
Key points from today’s statement:
- FOMC members, for the first time since the Great Recession, view the current expansion as “solid.” They assessed the pace of activity as “moderate” at the previous meeting.
- The Fed noted that job gains were “strong,” another first for the current expansion. But it left unchanged the reference to underutilization of labor resources.
- Low inflation readings are seen to reflect mostly a decline in energy prices. Inflation is expected to head lower in the near term and then move gradually toward the Fed’s 2.0% target as the “transitory” influence of lower energy prices dissipates and labor market conditions improve.
- The Fed continues to differentiate between market-based and survey-based inflation expectations, with the latter seen as stable.
- The Fed did away with the “considerable time” phrase. It retained the language indicating it can be “patient” in normalizing interest rates.
- The statement notes that “international developments” are another factor that will influence its evaluation of progress toward the dual mandate of full employment and price stability.
- Although the Fed noted that economic activity is solid, the forward-looking statement mentions that it expects economic activity to expand at a “moderate” pace. The Committee also sees risks to the economic outlook as evenly balanced.
- We continue to expect monetary policy tightening to commence in September 2015.