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FOMC th Meeting Update As summarized by Smith Shellnut Wilson June 18

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The said today growth is bouncing back and the job market is improving as it continues to reduce the monthly pace of asset purchases. “Economic activity is rebounding in the current quarter and will continue to expand at a moderate pace thereafter,” Federal Reserve Chair said at a press conference in Washington today following a meeting of the Federal Open Market Committee. Even with declines in unemployment, “a broader assessment of indicators suggests that underutilization in the labor market remains significant.” The FOMC trimmed bond-buying by $10 billion for a fifth straight meeting, to $35 billion, keeping it on pace to end the program late this year. Yellen and her fellow policy makers are debating how long to keep interest rates near zero as the U.S. labor market improves and inflation moves closer to the Fed’s 2% goal. The policy-making FOMC repeated today that it’s likely to “reduce the pace of asset purchases in further measured steps” and that it expects rates to stay low for a “considerable time” after the bond buying ends. Updating their economic forecasts, Fed officials predicted that the target Fed funds rate will be 1.13% at the end of 2015 and 2.5% a year later, higher than previously forecast. They lowered their long-run estimated target rate to 3.75% from 4%, reflecting slower long-term growth for the U.S. economy. Fed participants estimated long-term growth at 2.1% to 2.3%, compared with 2.2% to 2.3% in March. Attached is a side-by-side comparison of the U.S. Federal Open Market Committee statements from June 18, 2014 and April 30, 2014.

FOMC STATEMENTS: SIDE-BY-SIDE

JUNE 18 APRIL 30

Information received since the Federal Open Market Information received since the Federal Open Market Committee met in April indicates that growth in economic Committee met in March indicates that growth in economic activity has rebounded in recent months. Labor market activity has picked up recently, after having slowed indicators generally showed further improvement. The sharply during the winter in part because of adverse unemployment rate, though lower, remains elevated. weather conditions. Labor market indicators were mixed but Household spending appears to be rising moderately and on balance showed further improvement. The unemployment business fixed investment resumed its advance, while the rate, however, remains elevated. Household spending appears recovery in the housing sector remained slow. Fiscal policy to be rising more quickly. Business fixed investment edged is restraining economic growth, although the extent of down, while the recovery in the housing sector remained restraint is diminishing. Inflation has been running below slow. Fiscal policy is restraining economic growth, the Committee's longer-run objective, but longer-term although the extent of restraint is diminishing. Inflation inflation expectations have remained stable. has been running below the Committee's longer-run Consistent with its statutory mandate, the Committee objective, but longer-term inflation expectations have seeks to foster maximum employment and price stability. The remained stable. Committee expects that, with appropriate policy Consistent with its statutory mandate, the Committee accommodation, economic activity will expand at a moderate seeks to foster maximum employment and price stability. The pace and labor market conditions will continue to improve Committee expects that, with appropriate policy gradually, moving toward those the Committee judges accommodation, economic activity will expand at a moderate consistent with its dual mandate. The Committee sees the pace and labor market conditions will continue to improve risks to the outlook for the economy and the labor market gradually, moving toward those the Committee judges as nearly balanced. The Committee recognizes that inflation consistent with its dual mandate. The Committee sees the persistently below its 2 percent objective could pose risks risks to the outlook for the economy and the labor market to economic performance, and it is monitoring inflation as nearly balanced. The Committee recognizes that inflation developments carefully for evidence that inflation will persistently below its 2 percent objective could pose risks move back toward its objective over the medium term. to economic performance, and it is monitoring inflation The Committee currently judges that there is developments carefully for evidence that inflation will sufficient underlying strength in the broader economy to move back toward its objective over the medium term. support ongoing improvement in labor market conditions. In The Committee currently judges that there is light of the cumulative progress toward maximum employment sufficient underlying strength in the broader economy to and the improvement in the outlook for labor market support ongoing improvement in labor market conditions. In conditions since the inception of the current asset light of the cumulative progress toward maximum employment purchase program, the Committee decided to make a further and the improvement in the outlook for labor market measured reduction in the pace of its asset purchases. conditions since the inception of the current asset Beginning in July, the Committee will add to its holdings purchase program, the Committee decided to make a further of agency mortgage-backed securities at a pace of $15 measured reduction in the pace of its asset purchases. billion per month rather than $20 billion per month, and Beginning in May, the Committee will add to its holdings of will add to its holdings of longer-term Treasury securities agency mortgage-backed securities at a pace of $20 billion at a pace of $20 billion per month rather than $25 billion per month rather than $25 billion per month, and will add per month. The Committee is maintaining its existing policy to its holdings of longer-term Treasury securities at a of reinvesting principal payments from its holdings of pace of $25 billion per month rather than $30 billion per agency debt and agency mortgage-backed securities in agency month. The Committee is maintaining its existing policy of mortgage-backed securities and of rolling over maturing reinvesting principal payments from its holdings of agency Treasury securities at auction. The Committee's sizable and debt and agency mortgage-backed securities in agency still-increasing holdings of longer-term securities should mortgage-backed securities and of rolling over maturing maintain downward pressure on longer-term interest rates, Treasury securities at auction. The Committee's sizable and support mortgage markets, and help to make broader still-increasing holdings of longer-term securities should financial conditions more accommodative, which in turn maintain downward pressure on longer-term interest rates, should promote a stronger economic recovery and help to support mortgage markets, and help to make broader ensure that inflation, over time, is at the rate most financial conditions more accommodative, which in turn consistent with the Committee's dual mandate. should promote a stronger economic recovery and help to The Committee will closely monitor incoming ensure that inflation, over time, is at the rate most information on economic and financial developments in consistent with the Committee's dual mandate. coming months and will continue its purchases of Treasury The Committee will closely monitor incoming and agency mortgage-backed securities, and employ its other information on economic and financial developments in policy tools as appropriate, until the outlook for the coming months and will continue its purchases of Treasury labor market has improved substantially in a context of and agency mortgage-backed securities, and employ its other price stability. If incoming information broadly supports policy tools as appropriate, until the outlook for the the Committee's expectation of ongoing improvement in labor labor market has improved substantially in a context of market conditions and inflation moving back toward its price stability. If incoming information broadly supports longer-run objective, the Committee will likely reduce the the Committee's expectation of ongoing improvement in labor pace of asset purchases in further measured steps at future market conditions and inflation moving back toward its meetings. However, asset purchases are not on a preset longer-run objective, the Committee will likely reduce the course, and the Committee's decisions about their pace will pace of asset purchases in further measured steps at future remain contingent on the Committee's outlook for the labor meetings. However, asset purchases are not on a preset market and inflation as well as its assessment of the course, and the Committee's decisions about their pace will likely efficacy and costs of such purchases. remain contingent on the Committee's outlook for the labor To support continued progress toward maximum market and inflation as well as its assessment of the employment and price stability, the Committee today likely efficacy and costs of such purchases. reaffirmed its view that a highly accommodative stance of To support continued progress toward maximum monetary policy remains appropriate. In determining how employment and price stability, the Committee today long to maintain the current 0 to 1/4 percent target range reaffirmed its view that a highly accommodative stance of for the rate, the Committee will assess monetary policy remains appropriate. In determining how progress--both realized and expected--toward its objectives long to maintain the current 0 to ¼ percent target range of maximum employment and 2 percent inflation. This for the , the Committee will assess assessment will take into account a wide range of progress -- both realized and expected --toward its information, including measures of labor market conditions, objectives of maximum employment and 2 percent inflation. indicators of inflation pressures and inflation This assessment will take into account a wide range of expectations, and readings on financial developments. The information, including measures of labor market conditions, Committee continues to anticipate, based on its assessment indicators of inflation pressures and inflation of these factors, that it likely will be appropriate to expectations, and readings on financial developments. The maintain the current target range for the federal funds Committee continues to anticipate, based on its assessment rate for a considerable time after the asset purchase of these factors, that it likely will be appropriate to program ends, especially if projected inflation continues maintain the current target range for the federal funds to run below the Committee's 2 percent longer-run goal, and rate for a considerable time after the asset purchase provided that longer-term inflation expectations remain program ends, especially if projected inflation continues well anchored. to run below the Committee's 2 percent longer-run goal, and When the Committee decides to begin to remove policy provided that longer-term inflation expectations remain accommodation, it will take a balanced approach consistent well anchored. with its longer-run goals of maximum employment and When the Committee decides to begin to remove policy inflation of 2 percent. The Committee currently anticipates accommodation, it will take a balanced approach consistent that, even after employment and inflation are near mandate- with its longer-run goals of maximum employment and consistent levels, economic conditions may, for some time, inflation of 2 percent. The Committee currently anticipates warrant keeping the target federal funds rate below levels that, even after employment and inflation are near mandate- the Committee views as normal in the longer run. consistent levels, economic conditions may, for some time, Voting for the FOMC monetary policy action were: Janet warrant keeping the target federal funds rate below levels L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael the Committee views as normal in the longer run. Voting for Brainard; Stanley Fischer; Richard W. Fisher; Narayana the FOMC monetary policy action were: Janet L. Yellen, Kocherlakota; Loretta J. Mester; Charles I. Plosser; Jerome Chair; William C. Dudley, Vice Chairman; Richard W. Fisher; H. Powell; and Daniel K. Tarullo. Narayana Kocherlakota; Sandra Pianalto; Charles I. Plosser; Jerome H. Powell; Jeremy C. Stein; and Daniel K. Tarullo.