14.12.201709:31 Forex Analysis & Reviews: What did the Fed say on December 13, 2017

What did the Fed say on December 13, 2017?

The Fed raised the base interest rate by 25 basis points to the target range of 1.25% -1.50% while the Federal Open Market Committee of the US Federal Reserve commented on its decision and the current situation in the country.

The Fed notes a significant increase in economic activity, a continuing improvement in the labor market situation due to a moderate average growth in jobs taking into account deviations from past hurricanes and a consistent reduction in unemployment.

The Fed states that during the period between the commission meetings, family expenses showed moderate expansion and the growth of investments by business structures has increased significantly in recent quarters.

The Fed continues to assess long-term inflation expectations as stable. At the same time, the total inflation and basic inflation calculated on a 12-month basis, which does not take into account energy and food prices, decreased this year and remain below 2%. Compensatory data shows that the same impact on inflation from the market continues to be implemented to a small extent.

The Fed seeks, in accordance with its authority, to promote maximum employment and price stability. The damage and restoration work caused by hurricanes affected economic activity, employment, and inflation in recent months but did not significantly change the assessment of the prospects for the national economy. Therefore, the Fed still expects that the gradual regulation of monetary policy will promote the expansion of economic activity at a moderate pace and will maintain a strong labor market. Annual inflation is expected to remain slightly below 2% in the near future but should stabilize near the Fed's target of a 2% target level in the medium term. Short-term risks for the economic outlook look was fairly balanced but the Fed will continue to closely monitor inflation.

Taking into account the already achieved and expected parameters of the labor market and inflation, the Fed decided to raise the target interest rate range for federal funds to 1.25% -1.50%. The basic principles of monetary policy will remain flexible enough, thereby supporting the strengthening of the labor market and the steady return of inflation to a level of 2%.

In determining the timing and scope of future regulation of the target interest rate range for federal funds, the Fed will be guided by both achieved and expected progress in moving towards long-term goals of maximum employment and inflation at 2%. This approach will be based on a wide range of information, including parameters of labor market conditions and indicators of inflationary pressures and inflation expectations including financial and international events. The Fed will closely monitor the actual and expected inflationary processes in relation to its symmetric target of inflation rate. The Fed expects that economic conditions will evolve in such a way that they will ensure a smooth increase in the interest rate for federal funds and it will probably remain for some time below the levels that are expected to prevail over the long term. However, the actual interest rate trajectory for federal funds will depend on economic trends in accordance with the incoming data.

The current fundamentals of monetary policy were adopted by a majority of votes with a 7 vs. 2 result. The final decision was not supported by the president of the Federal Reserve Bank of Chicago, Charles Evans, and the president of the Federal Reserve Bank of Minneapolis, Neel Kashkari, who proposed to maintain the current target interest rate range for federal funds at 1.00% -1.25% at this meeting.