Rewriting the FOMC Statement to Better Communicate Policy
Published May 18, 2015 | May 2015 issue
Minneapolis Fed staff have experimented with alternative wording for the FOMC’s post-meeting statements to better communicate policy actions and rationales. Directly below is the original text of the FOMC’s Jan. 28, 2015, statement. Following that is a possible alternative wording of that same statement.
Original statement, Jan. 28, 2015
Information received since the Federal Open Market Committee met in December suggests that economic activity has been expanding at a solid pace. Labor market conditions have improved further, with strong job gains and a lower unemployment rate. On balance, a range of labor market indicators suggests that under-utilization of labor resources continues to diminish. Household spending is rising moderately; recent declines in energy prices have boosted household purchasing power. Business fixed investment is advancing, while the recovery in the housing sector remains slow. Inflation has declined further below the Committee’s longer-run objective, largely reflecting declines in energy prices. Market-based measures of inflation compensation have declined substantially in recent months; 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 decline further 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 lower energy prices and other factors 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. Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy. However, if incoming information indicates faster progress toward the Committee’s employment and inflation objectives than the Committee now expects, then increases in the target range for the federal funds rate are likely to occur sooner than currently anticipated. Conversely, if progress proves slower than expected, then increases in the target range are likely to occur later than currently anticipated.
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.
Alternative statement, Jan. 28, 2015
On Jan. 28, 2015, the Federal Open Market Committee decided to maintain the current levels of its monetary policy instruments. The Committee extended by one meeting the period when it is not likely to increase the federal funds rate target. The Committee expects that its plan for the federal funds rate and asset holdings will return the economy to maximum employment this year and to an inflation rate near 2 percent within two to three years.
Federal funds rate
- Current level: The target range remains 0 to 1/4 percent.
- Future plan: The Committee is not likely to increase the target range at either of its next two meetings. The Committee will continue to set the target range based on realized and expected progress toward its inflation and employment objectives. The Committee will use a wide range of information to assess this progress and will take a balanced approach to the two goals. Even after employment and inflation are near the objectives, the Committee may temporarily need to keep the target federal funds rate below normal levels in order to achieve the dual mandate.
- Current activity: The Committee will continue reinvesting principal payments from agency debt and agency mortgage-backed securities in agency mortgage-backed securities. The Committee will continue rolling over maturing Treasury securities at auction.
- Future plan: At some time after it begins increasing the federal funds rate target, the Committee will reduce its asset holdings by stopping reinvestment of principal payments. In the long run, the Committee will hold primarily Treasury securities.
The Committee determines how to attain its statutory mandate of maximum employment and price stability by reviewing information on resource utilization and inflation.
The labor market has improved further, with strong job gains and a lower unemployment rate. Risks to the outlook for resource utilization appear nearly balanced.
Falling energy prices have pushed inflation further below the Committee’s longer-run objective of 2 percent. Market-based measures of inflation compensation have declined substantially in recent months. However, survey-based measures of longer-term inflation expectations have remained stable. Inflation will probably fall more in coming months before rebounding as the labor market improves and transitory influences dissipate.
Policy decisionThe Committee determined that its outlook for employment and inflation over the medium term, coupled with stable survey-based measures of longer-run inflation expectations, justifies maintaining the current stance of monetary policy.
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