Here is the official statement from the Federal Reserve:
Release Date: June 15, 2016
For release at 2:00 p.m. EDT
Information received since the Federal Open Market Committee met in April indicates that the pace of improvement in the labor market has slowed while growth in economic activity appears to have picked up. Although the unemployment rate has declined, job gains have diminished. Growth in household spending has strengthened. Since the beginning of the year, the housing sector has continued to improve and the drag from net exports appears to have lessened, but business fixed investment has been soft. Inflation has continued to run below the Committee’s 2 percent longer-run objective, partly reflecting earlier declines in energy prices and in prices of non-energy imports. Market-based measures of inflation compensation declined; most survey-based measures of longer-term inflation expectations are little changed, on balance, in recent months.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee currently expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market indicators will strengthen. Inflation is expected to remain low in the near term, in part because of earlier declines in energy prices, but to rise to 2 percent over the medium term as the transitory effects of past declines in energy and import prices dissipate and the labor market strengthens further. The Committee continues to closely monitor inflation indicators and global economic and financial developments.
Against this backdrop, the Committee decided to maintain the target range for the federal funds rate at 1/4 to 1/2 percent. The stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation.
In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to 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. In light of the current shortfall of inflation from 2 percent, the Committee will carefully monitor actual and expected progress toward its inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.
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, and it anticipates doing so until normalization of the level of the federal funds rate is well under way. This policy, by keeping the Committee’s holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.
Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; James Bullard; Stanley Fischer; Esther L. George; Loretta J. Mester; Jerome H. Powell; Eric Rosengren; and Daniel K. Tarullo.
Implementation Note issued June 15, 2016
More Information on Federal Reserve Decision
The press conference has concluded.
The main takeaway is that the Federal Reserve is a cautious institution, pulling back from its expectations of raising interest rates aggressively over the next few years.
The Fed remains dovish. It may think higher rates would be appropriate in an ideal world, but the world is far from ideal.
A rate hike in June may have never been in the cards. Yellen says the upcoming vote in the U.K. on Brexit was one factor holding the Fed at bay at today’s meeting.
But weak job growth, weak investment and weak exports are also working against the Fed’s hopes that it could raise rates as many as four times this year.
Treasury yields fell after the Fed’s decision and have remained lower during Yellen’s news conference. Yields fall as Treasury prices rise.
An already flat yield curve–the line represented by plotting yields across maturities–continued to flatten as shorter-term yields saw a more pronounced decline as rate expectations.
The spread between 2- and 10-year yields flattened to its tightest point since November 2007 before widening back out to around 90.2 basis points, according to Tradeweb (see chart).
U.S. Treasury yields fell following the Federal Reserve’s decision to leave its target range for the federal funds rate at 0.25-0.5% and pare back rate forecasts for 2017 and 2018, data from Tradeweb show.
Asked about the use of so-called helicopter money by the Fed, Yellen says it’s best for the Fed to remain independent from fiscal policy, where any massive infusion of “helicopter money” would likely take place.
But in extreme circumstances, Yellen says it could be wise for the Fed to coordinate policy with Congress and the White House to facilitate helicopter money.