FOMC votes to maintain target range

Date: August 2, 2018

Based on the latest information received by the Federal Open Market Committee (FOMC) since June, the FOMC has noticed strengthening in the labour market coinciding with rising economic activity. Based on the FOMC, Job gains have been strong, on average, in recent months, and the unemployment rate has stayed low. Strong growth was also observed in household spending and business fixed investment.

Over a 12 month period, overall inflation and inflation for items other than food and energy remain nigh 2%. Indicators of longer-term inflation expectations are little changed, on balance.

According to the FOMC’s statement, “the Committee seeks to foster maximum employment and price stability. The Committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labour market conditions, and inflation near the Committee’s symmetric 2 percent objective over the medium term. Risks to the economic outlook appear roughly balanced.”
The FOMC decided to maintain the target range for the federal funds rate at 1.75% – 2% in view of realized and expected labour market conditions and inflation. The Board of Governors of the Federal System voted unanimously in favour of this decision and also voted to retain the interest rate paid on required and excess balances at 1.95%, as at August 2, 2018.

Additionally, the FOMC voted to permit and instruct the Open Market Desk at the Federal Reserve Bank of New York, until any further notice, to carry out the transactions in the System Open Market Account with the below directive:

To facilitate the open market operations as needed to keep the federal funds rate in the target range of 1-3/4 to 2%, including overnight reverse repurchase operations (and reverse repurchase operations with maturities of more than one day so as to accommodate weekend, holiday, or similar trading conventions) at an offering rate of 1.75%, in limited amounts only by the value of the Treasury securities held outright in the System Open Market Account, available for such operations and by a per counterparty limit of $30 billion daily.

To continue rolling over at auction the amount of principal payments from the Federal Reserves’ holding of Treasury security which will mature in each calendar month above $24 billion, and to reinvest in agency mortgage-backed securities maturing during each calendar month more than $16 billion. Notably, small variances from the said amounts for operational purposes are permitted.

To engage in dollar roll and coupon swap transactions as necessary for settlement of the Federal Reserve’s agency mortgage-backed securities transactions, in a related action.

The Board voted totally on the agreement of the establishment of the primary credit rating at the current level of 2.50%. The FOMC asserts, “The stance of monetary policy remains accommodative, thereby supporting strong labour market conditions and a sustained return to 2 percent inflation.”

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