The Federal Reserve signaled on Wednesday that it could raise interest rates later this year, contingent on further improvements in the labor market and increasing confidence that inflation will move back to its 2% target.
In a statement released after its two-day policy meeting, the Federal Open Market Committee (FOMC) noted that economic activity has been expanding moderately and that labor market conditions have continued to improve, with solid job gains and a decline in the unemployment rate.
However, the committee also acknowledged that inflation remains below its 2% objective, partly reflecting declines in energy prices and non-energy import prices. The FOMC expects inflation to rise gradually toward 2% over the medium term as the transitory effects of lower energy and import prices dissipate and the labor market strengthens further.
The Fed has kept its benchmark interest rate near zero since December 2008 in an effort to support the economic recovery. The decision to begin raising rates will depend on incoming data and the committee’s assessment of the economic outlook.
Key factors the Fed will be monitoring include:
- Further improvements in the labor market
- Evidence that inflation is moving back to 2%
- Overall economic conditions
The FOMC reiterated that it will continue to reinvest proceeds from maturing Treasury securities and agency mortgage-backed securities, which will help maintain accommodative financial conditions.
The timing and pace of future rate increases will be data-dependent, and the committee will carefully assess incoming information to determine the appropriate path for monetary policy.
