The Federal Reserve Open Market Committee (FOMC) voted to raise the target range for the federal funds rate by 25 basis points to 1 to 1.25 percent. Like in March, the vote was near unanimous, with Minneapolis Fed President Neel Kashkari once again casting the only dissenting vote, wanting to hold rates steady.
The projected policy path for the federal funds rate was similar to March, with the Fed’s dot plot showing one more rate hike this year. Participants estimated a target rate of 1.4 percent for 2017, a 2.1 percent rate for 2018, and a 2.9 percent rate for 2019 (a 10 basis point decrease).
In their decision to move the target rate, the Committee noted that the labor market has “continued to strengthen and that economic activity has been rising moderately so far this year.” Monetary policy remains accommodative, supporting some further strengthening in labor market conditions and a sustained return to 2 percent inflation.
The Committee included a statement about how it will begin to unwind its $4.5 trillion balance sheet, noting that it “currently expects to begin implementing a balance sheet normalization program this year, provided that the economy evolves broadly as anticipated.” The program would gradually reduce the Fed’s holdings by allowing a fixed amount of assets- $6 billion of Treasuries and $4 billion of mortgage-backed securities- to roll off on a monthly basis. These amounts will increase on a quarterly basis by $6 billion for Treasuries and $4 billion for mortgage-backed securities until they reach $30 billion and $20 billion, respectively.
Read the FOMC statement.