According to minutes of the March 18-19 meeting of the Federal Open Market Committee, the Fed signaled that it anticipates that even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the committee views as normal in the long run.
The following are excerpts from the Federal Reserve minutes on interest rates, business equipment expenditures and GDP:
The committee said, “It likely will be appropriate to maintain the current target range for the Federal funds rate for a ‘considerable time’ after the asset purchase program ends, especially if projected inflation continues to run below the committee’s 2% longer-run goal and provided that longer-term inflation expectations remain well anchored.”
However, new orders for these capital goods increased and remained above the level of shipments in January, pointing to increases in shipments in subsequent months.
Other forward-looking indicators, such as surveys of business conditions, also were generally consistent with modest increases in business equipment spending in the near term. Real business spending for nonresidential structures was essentially unchanged in the fourth quarter, and nominal expenditures for such structures were flat in January.
March FOMC meeting, the committee said real GDP growth in the first
half of this year was somewhat lower than in the projection for the January meeting. The available readings on consumer spending, residential construction, and business investment pointed to less spending growth in
the first quarter than the staff had previously expected. The staff’s assessment was that the unusually severe winter weather could account for some, but not all, of the recent unanticipated weakness in economic activity, and the staff lowered its projection for near-term output
growth. Largely because of the combination of recent downward surprises in the unemployment rate and weaker-than-expected real GDP growth, the staff lowered slightly the assumed pace of potential output growth in recent years and over the projection period.
As a result, the staff’s medium-term forecast for real GDP growth also was revised down slightly. Nevertheless, the staff continued to project that real GDP would expand at a faster pace over the next few years than it did last year, and that real GDP growth would exceed the growth rate of potential output. The faster pace of real GDP growth was expected to be supported by an easing in the restraint from changes in fiscal policy, increases in consumer and business confidence, further improvements in credit availability and financial conditions, and a pickup in the rate of foreign economic growth.
To read the entire minutes from the Federal Reserve meeting, click here.