Federal Reserve states that U.S. economy is improving

The U.S. Federal Reserve has issued a statement that the U.S. economy is improving.

During the first half of the year U.S. economic activity increased at a ‘modest’ rate, with labor market conditions improving and the housing sector strengthening.

According to the statement:

“The Committee expects that, with appropriate policy accommodation, economic growth will pick up from its recent pace and the unemployment rate will gradually decline toward levels the Committee judges consistent with its dual mandate. The Committee sees the downside risks to the outlook for the economy and the labor market as having diminished since the fall.”

Mortgage rates have increased slightly and fiscal policy has restrained the extent of economic growth. In addition, inflation rates have been below the Federal Open Market Committee’s longer-run objective.

Inflation rates below the Committee’s 2 percent objective could pose serious risks to economic recovery, however, they remain optimistic that it will eventually reach its objective, “over the medium term”.

In order to ensure that inflation is at a rate most consistent with the Committee’s dual mandate, the Feds will continue to buy agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at $45 billion per month.

“Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.”

The Committee said that “a highly accommodative stance of monetary policy will remain appropriate” will be implemented until economic recovery strengthens and asset purchase programs end.

In addition, the Committee agreed to establish a target of 0-0.25 percent federal funds rate. This rate is considered to be ‘appropriate’ while  unemployment is above 6.5 percent. 

The following member voted in favor of the FOMC monetary policy:

  • Ben S. Bernanke, Chairman
  • William C. Dudley, Vice Chairman
  • James Bullard
  • Elizabeth A. Duke
  • Charles L. Evans
  • Jerome H. Powell
  • Sarah Bloom Raskin
  • Eric S. Rosengren
  • Jeremy C. Stein
  • Daniel K. Tarullo
  • Janet L. Yellen.

The only member to vote against the action was Esther L. George. She believed that the high level of monetary accommodation may increase the likelihood of future financial imbalances.