Excerpt on policy from May 2-3 FOMC minutes

For a full text, see http://www.federalreserve.gov/monetarypolicy/fomccalendars.htm

"In their discussion of monetary policy for the period ahead, members judged that information received since the Committee met in March indicated that the labor market had continued to strengthen even as growth in economic activity had slowed. Job gains had remained solid, on average, in recent months, and the unemployment rate had declined. Household spending had risen only modestly, but the fundamentals underpinning the continued growth of consumption remained solid, while business fixed investment had firmed.

"Inflation, measured as the 12-month change in the headline PCE price index, had been running close to the Committee’s 2 percent longer-run objective. Core inflation continued to run somewhat below 2 percent. Both headline and core consumer price indexes fell in March. Market-based measures of inflation compensation had remained low, while survey-based measures of longerterm inflation expectations had changed little on balance.

"With respect to the economic outlook and its implications for monetary policy, members agreed that the slowing in growth during the first quarter was likely to be transitory and continued to expect that, with gradual adjustments in the stance of monetary policy, economic activity would expand at a moderate pace, labor market conditions would strengthen somewhat further, and inflation would stabilize around 2 percent over the medium

term. Members continued to judge that there was significant uncertainty about the effects of possible changes in fiscal and other government policies but that near-term risks to the economic outlook appeared roughly balanced. A couple of members noted that the outlook for global growth appeared to have brightened and that downside risks from abroad had waned. Members agreed that they would continue to closely monitor inflation indicators and global economic and financial developments.

"After assessing current conditions and the outlook for economic activity, the labor market, and inflation, members agreed to maintain the target range for the federal funds rate at 3/4 to 1 percent. They noted that the stance of monetary policy remained accommodative, thereby supporting some further strengthening in labor market conditions and a sustained return to 2 percent inflation.

"Members generally judged that it would be prudent to await additional evidence indicating that the recent slowing in the pace of economic activity had been transitory before taking another step in removing accommodation. Members agreed that, in determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee would assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation. This assessment would take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

Members also agreed to continue to carefully monitor actual and expected inflation developments relative to the Committee’s symmetric inflation goal, with one member viewing further progress of inflation toward the 2 percent objective as necessary before taking another step to remove policy accommodation. Members expected that economic conditions would evolve in

a manner that would warrant gradual increases in the federal funds rate. Members agreed that the federal funds rate was likely to remain, for some time, below levels that they expected to prevail in the longer run.

However, they noted that the actual path of the federal funds rate would depend on the economic outlook as informed by incoming data.

"The Committee also decided to maintain its existing policy of reinvesting all principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. Members anticipated doing so until normalization of the level of the federal funds rate was well under way, and they noted that this policy, by keeping the Committee’s holdings of longer-term securities at sizable levels, should help maintain

accommodative financial conditions."