The results of the FOMC meeting: the “soft” rate increase and plans to reduce the fed’s balance sheet (REPEAT)



Wednesday, June 14, were announced the results of the two-day meeting of the Federal open market Committee of the USA (FOMC). The regulators took the decision to raise the Federal funds rate by 25 basis points to 1.00 – 1.25%, noting continuing improvements in the labour market and moderate economic growth, but ignoring the recent deterioration in U.S. economic data.

Experts called the decision a “soft” rate increase, as in the statement of the Committee said about inflation. But according to regulators, the recent slowdown in inflation will be short-term and in the medium term, annual inflation stabiliziruemost in the region of 2%.

The Committee also reported the desire to start this year implementation of the program of normalization of its balance sheet, subject to progressive development of the economy. This program implies a reduction of the fed’s investment in securities through the reduction of reinvestments of basic payments on these securities. The start date of the program implementation are still unknown.

In comparison with the previous accompanying statements, the current missing saying the Committee will “stick to their policy of reinvestment” funds “to a until normalization of the level of the Federal funds rate will not go full speed.” Also in the statement is missing the sentence about the intention “to save the attachments of the Committee in long-term securities in significant volumes”.

The FOMC decision was not unanimous. President of the Federal reserve Bank of Minneapolis Neil Kashkari said that he would prefer for this meeting to maintain the previous target corridor for the Federal funds rate.

After a meeting of the Committee was published the updated forecasts of the fed members at the rate and prospects of the American economy. Current projections, more than half of the fed members suggest that in 2017, the Federal funds rate will be raised one more time, and this is consistent with previous predictions regulators.

At the moment, the fed predicts that by the end of 2017 the rate will be raised to 1.4% (forecast unchanged) and by the end of 2018, the rate will reach 2.1% (forecast unchanged). Also the current fed’s forecast assumes that the rate will increase to 2.9% in 2019 (March forecast: 3.0%) and will remain at 3.0% in the long term (forecast unchanged).

In addition, the fed has improved the forecast on GDP growth of USA in 2017, the unemployment rate for 2017 – 2019 and long term, but lowered its inflation forecast for 2017.

At the moment the median forecast of FOMC members suggests that this year the US GDP will grow by 2.2% (March forecast: 2.1%) in 2018 by 2.1% (forecast unchanged) in 2019 – 1.9% (forecast unchanged). In the long term is expected to average annual GDP growth of 1.8% (forecast unchanged).

The median forecast for the unemployment rate in the US in 2017 amounted to 4.3% (March forecast: 4.5%), 2018 4.2% (March forecast: 4.5%), 2019 is 4.2% (March forecast: 4.5%), long-term – 4.6% (March forecast: 4.7%).

The median forecast for head of inflation (calculated on the basis of the PCE index) for 2017 lowered to 1.6% from 1.9% in March and unchanged for the remaining reporting periods: 2018 and 2019 and the long term – at the level of 2.0%.

The median forecast of core inflation (calculated on the basis of the index Core PCE) for 2017 downgraded to 1.7% compared to 1.9% in March, but in 2018 and 2019 forecast left unchanged at the level of 2.0%.




The results of the FOMC meeting: the “soft” rate increase and plans to reduce the fed’s balance sheet (REPEAT) 15.06.2017

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