U.S.

Federal Open Market Committee - Federal Funds Rate

by Eduardo Petazze

Update at December 16, 2015

The Fed has lifted its fed funds target to a range of 0.25 to 0.50 percent

Federal Open Market Committee statement

Implementation Note issued December 16, 2015
Projections Materials pdf, 5 pages
The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgagebacked securities and of rolling over maturing Treasury securities at auction, and it anticipates doing so until normalization of the level of the federal funds rate is well under way
The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain,
for some time, below levels that are expected to prevail in the longer run (~ 3.5%)

Summary of Economic Projections

FMOC Summary of
Economic Projections (%)
Change in real GDP
Dec15 projection
Sep15 projection
Jun15 projection
Mar15 projection
Dec14 projection
Sep14 projection
Jun14 projection
Mar14 projection
Dec13 projection
Sep13 projection
Unemployment rate
Dec15 projection
Sep15 projection
Jun15 projection
Mar15 projection
Dec14 projection
Sep14 projection
Jun14 projection
Mar14 projection
Dec13 projection
Sep13 projection
PCE inflation
Dec15 projection
Sep15 projection
Jun15 projection
Mar15 projection
Dec14 projection
Sep14 projection
Jun14 projection
Mar14 projection
Dec13 projection
Sep13 projection
Core PCE inflation
Dec15 projection
Sep15 projection
Jun15 projection
Mar15 projection
Dec14 projection
Sep14 projection
Jun14 projection
Mar14 projection
Dec13 projection
Sep13 projection

2015

Central tendency
2016
2017
2018

Longer run

FOMC participants' assessments of appropriate

monetary policy

2015

Range
2017

2016

2018

Longer run

2.1
2.0 2.3
1.8 2.0
2.3 2.7
2.6 3.0
2.6 3.0
3.0 3.2
3.0 3.2
3.0 3.4
3.0 3.5

2.3
2.2
2.4
2.3
2.5
2.6
2.5
2.5
2.5
2.5

2.5
2.6
2.7
2.7
3.0
2.9
3.0
3.0
3.2
3.3

2.0
2.0
2.1
2.0
2.3
2.3

2.3 1.8 2.2 1.8

2.4 1.8 2.2 1.8
2.5
2.0
2.4
2.0
2.5
2.0
2.5
2.0
2.1
2.2
2.2
2.2

2.2
2.2
2.3
2.3
2.3
2.3
2.3
2.3
2.4
2.5

2.0
1.9
1.7
2.1
2.1
2.1
2.2
2.2
2.2
2.2

2.2
2.5
2.3
3.1
3.2
3.2
3.6
3.5
3.6
3.7

2.0
2.1
2.3
2.2
2.1
2.1
2.2
2.2
2.1
2.2

2.7
2.8
3.0
3.0
3.0
3.0
3.2
3.4
3.5
3.5

1.8
1.9
2.0
1.8
2.0
2.0

2.5 1.7 2.4

2.6 1.6 2.4
2.5
2.5
2.7
2.6

1.8
1.8
1.8
1.8
1.8
1.8
1.8
1.8
1.8
2.1

2.3
2.7
2.5
2.5
2.7
2.6
2.5
2.4
2.5
2.5

5.0
5.0 5.1
5.2 5.3
5.0 5.2
5.2 5.3
5.4 5.6
5.4 5.7
5.8 5.9
5.8 6.1
5.9 6.2

4.6
4.7
4.9
4.9
5.0
5.1
5.1
5.2
5.3
5.4

4.8
4.9
5.1
5.1
5.2
5.4
5.5
5.6
5.8
5.9

4.6
4.7
4.9
4.8
4.9
4.9

4.8 4.6 5.0 4.8

4.9 4.7 5.0 4.9
5.1
5.0
5.1
5.0
5.3
5.2
5.3
5.2
5.2
5.2
5.2
5.2

5.0
5.2
5.2
5.2
5.5
5.5
5.5
5.8
5.8
5.8

5.0
4.9 5.2
5.0 5.3
4.8 5.3
5.0 5.5
5.2 5.7
5.2 5.9
5.4 5.9
5.5 6.2
5.3 6.3

4.3
4.5
4.6
4.5
4.9
4.9
5.0
5.1
5.0
5.2

4.9
5.0
5.2
5.2
5.4
5.6
5.6
5.8
6.0
6.0

4.5
4.5
4.8
4.8
4.7
4.7

5.0 4.5 5.3

5.0 4.6 5.3
5.5
5.5
5.7
5.8

4.7
4.7
5.0
4.9
5.0
5.0
5.0
5.2
5.2
5.2

5.8
5.8
5.8
5.8
5.8
6.0
6.0
6.0
6.0
6.0

0.4
0.3 0.5
0.6 0.8
0.6 0.8
1.0 1.6
1.6 1.9
1.5 2.0
1.5 2.0
1.5 2.0
1.6 2.0

1.2
1.5
1.6
1.7
1.7
1.7
1.6
1.7
1.7
1.7

1.7
1.8
1.9
1.9
2.0
2.0
2.0
2.0
2.0
2.0

1.8
1.8
1.9
1.9
1.8
1.9

2.0 1.9 2.0

2.0
2.0
2.0
2.0
2.0
2.0

0.3
0.3
0.6
0.6
1.0
1.5
1.4
1.5
1.4
1.4

0.5
1.0
1.0
1.5
2.2
2.4
2.4
2.4
2.3
2.3

1.2
1.5
1.5
1.6
1.6
1.6
1.5
1.6
1.6
1.5

2.1
2.4
2.4
2.4
2.1
2.1
2.0
2.0
2.2
2.3

1.7
1.7
1.7
1.7
1.8
1.7

2.0 1.7 2.1

2.2 1.8 2.1
2.2
2.2
2.2
2.2

1.3
1.3 1.4
1.3 1.4
1.3 1.4
1.5 1.8
1.6 1.9
1.6 2.0
1.7 2.0
1.6 2.0
1.7 2.0

1.5
1.5
1.6
1.5
1.7
1.8
1.8
1.8
1.8
1.9

1.7
1.8
1.9
1.9
2.0
2.0
2.0
2.0
2.0
2.0

1.7
1.8
1.9
1.8
1.8
1.9

2.0 1.9 2.0

2.0 1.9 2.0
2.0
2.0
2.0
2.0

1.2
1.2
1.2
1.2
1.5
1.6
1.5
1.5
1.5
1.6

1.4
1.7
1.6
1.6
2.2
2.4
2.4
2.4
2.3
2.3

1.4
1.5
1.5
1.5
1.6
1.7
1.6
1.6
1.6
1.7

2.1
2.4
2.4
2.4
2.1
2.2
2.0
2.0
2.2
2.3

1.6
1.7
1.7
1.7
1.8
1.8

2.0 1.7 2.1

2.2 1.8 2.1
2.2
2.2
2.2
2.2

2.0
2.0
2.0
2.0
2.0
2.0
2.0
2.0
2.0
2.0

2.0
2.0
2.0
2.0
2.0
2.0
2.0
2.0
2.0
2.0

Appropriate pace of policy firming

Midpoint federal funds
rate
2015 2016 2017
2018
Longer Run
0.125
2
0.250
0.375
15
0.500
0.625
0.750
0.875
4
1.000
1.125
3
1.250
1.375
7
1.500
1.625
2
1.750
1.875
5
2.000
2.125
1
2
1
2.250
2.375
4
2.500
1
2.625
2
2.750
2.875
4
3.000
1
1
2
3.125
2
1
3.250
1
6
3.375
1
3
3.500
2
6
3.625
2
3.750
2
3.875
1
4.000
1
Number of participants
17
17
17
17
17
weighted rate
0.3456 1.2868 2.4118
3.1618
3.4118
Sep15 weighted rate 0.4044 1.4779 2.6397
3.3382
3.4632

See our projection of the employment situation for 2016 at the bottom of this document

Update at October 5, 2015

On average for 2015, the labor market conditions index (LMCI) will have a slightly positive value, noting that the expansion of labor market conditions are soon to end.
See details updated at the bottom of this document

Addendum - Update at September 17, 2015

Policy remained unchanged.
Now 13 of 17 members see the fedrrral funds rate hike coming by year end by, average, +25 bps to 0.250%~0.375%

Federal Open Market Committee statement

To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal
funds rate remains appropriate. In determining how long to maintain this target range, the Committee will assess progress--both realized and expected--toward its objectives of
maximum employment and 2 percent inflation.
The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen some further improvement in the labor market and is
reasonably confident that inflation will move back to its 2 percent objective over the medium term.

Addendum - Update at June 17, 2015

At least 10 of the 17 participants in the FOMC want to place the federal funds rate above its own expectations of inflation (PCE) for the current year.
Raising rates too soon (and at high level too) could trigger a greater-than-expected tightening of financial conditions or a bout of financial instability, causing the economy to stall. This
would likely force the Fed to reverse direction, moving rates back down toward zero with potential costs to credibility. (IMF)

Federal Open Market Committee statement

The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably
confident that inflation will move back to its 2 percent objective over the medium term.

Also see: 2015 Article IV Consultation with the United States of America Concluding Statement of the IMF Mission

Projection of the employment situation for 2016

In 2016 average unemployment rate of 4.4% is projected
Population data (000)
Total population (000)
Noninstitutional population (%)
Civilian noninstitutional population (+16 y)
Not in Labor force (+16 y), NSA
Civilian Labor Force Level, NSA
Participation rate, NSA
Labor force & Employment situation (000)
Employment Level
Total nonfarm
Farmers and self-employed
Unemployment Level (+16 yr)
NSA
Civilian Labor Force Level
Memo:
Unemployment rate
Nonfarm Payrolls Y/Y change

Oct-15
322,243
78.1%
251,541
94,228
157,313
62.5%

Nov-15
322,450
78.1%
251,747
94,408
157,339
62.5%

Dec-15
322,640
78.1%
251,924
95,169
156,755
62.2%

Jan-16
322,809
78.2%
252,367
95,763
156,604
62.1%

Feb-16
322,969
78.2%
252,665
95,525
157,140
62.2%

Mar-16
323,132
78.3%
252,909
95,561
157,348
62.2%

Apr-16
323,304
78.3%
253,127
95,642
157,485
62.2%

May-16
323,487
78.3%
253,330
94,801
158,529
62.6%

Jun-16
323,686
78.3%
253,543
94,072
159,471
62.9%

Jul-16
323,900
78.3%
253,761
94,126
159,635
62.9%

Aug-16
324,127
78.4%
253,981
95,498
158,483
62.4%

Sep-16
324,360
78.4%
254,199
96,330
157,869
62.1%

Oct-16
324,586
78.4%
254,413
96,104
158,309
62.2%

Nov-16
324,803
78.4%
254,625
96,457
158,168
62.1%

Dec-16
325,009
78.4%
254,818
97,062
157,756
61.9%

Oct-15
149,716
143,784
5,932
7,597
157,313

Nov-15
149,766
144,128
5,638
7,573
157,339

Dec-15
149,412
144,056
5,356
7,343
156,755

Jan-16
148,577
141,463
7,114
8,027
156,604

Feb-16
149,312
142,331
6,981
7,828
157,140

Mar-16
149,900
143,204
6,696
7,448
157,348

Apr-16
150,749
144,313
6,436
6,736
157,485

May-16
151,538
145,217
6,321
6,991
158,529

Jun-16
152,056
145,690
6,366
7,415
159,471

Jul-16
152,121
144,675
7,446
7,514
159,635

Aug-16
151,487
144,943
6,544
6,996
158,483

Sep-16
151,411
145,496
5,915
6,458
157,869

Oct-16
151,964
146,594
5,370
6,345
158,309

Nov-16
151,919
146,941
4,978
6,249
158,168

Dec-16
151,584
146,782
4,802
6,172
157,756

4.83%
2,784

4.81%
2,650

4.68%
2,572

5.13%
2,792

4.98%
2,812

4.73%
2,907

4.28%
2,876

4.41%
2,853

4.65%
2,854

4.71%
2,804

4.41%
2,882

4.09%
2,892

4.01%
2,810

3.95%
2,813

3.91%
2,726

Employment Level
Total nonfarm
Farmers and self-employed
Unemployment Level (+16 yr)
Civilian Labor Force Level
Memo:
Unemployment rate
Nonfarm Payrolls M/M change

149,120 149,364 149,668 150,147 150,406 150,579 150,845 151,063 151,061 151,079 151,237 151,222 151,395 151,665 151,919
142,689 142,900 143,419 143,712 143,971 144,124 144,296 144,491 144,675 144,914 145,075 145,225 145,459 145,693 146,017
6,431
6,464
6,249
6,435
6,435
6,455
6,549
6,572
6,386
6,165
6,162
5,997
5,936
5,972
5,902
7,908
7,937
7,521
7,597
7,485
7,354
7,223
7,245
7,110
7,048
6,869
6,692
6,597
6,572
6,385
157,028 157,301 157,189 157,744 157,891 157,933 158,068 158,308 158,171 158,127 158,106 157,914 157,992 158,237 158,304

Personal Consumption Expenditure

PCE Bn of chained (2009) dollars; SAAR
per Civilian labor force ($)
MoM
YoY
per Employee ($)
MoM
YoY
Latest Update
Estimate

Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16
11,292.8 11,337.0 11,365.0 11,394.0 11,369.0 11,371.0 11,391.0 11,418.0 11,434.0 11,462.0 11,501.0 11,526.0 11,536.0 11,529.0 11,562.0
71,916 72,072 72,301 72,231 72,005 71,999 72,064 72,125 72,289 72,486 72,742 72,989 73,016 72,859 73,037
-0.14% 0.22% 0.32% -0.10% -0.31% -0.01% 0.09% 0.09% 0.23% 0.27% 0.35% 0.34% 0.04% -0.22% 0.24%
1.86% 1.73% 2.68% 2.43% 1.74% 1.56% 1.35% 1.08% 1.12% 1.02% 1.01% 1.49% 1.31% 0.77% 1.12%
75,730 75,902 75,935 75,886 75,589 75,515 75,515 75,584 75,691 75,868 76,046 76,219 76,198 76,016 76,106
-0.16% 0.23% 0.04% -0.06% -0.39% -0.10% -0.00% 0.09% 0.14% 0.23% 0.24% 0.23% -0.03% -0.24% 0.12%
1.04% 1.18% 1.68% 1.64% 0.97% 0.72% 0.35% 0.33% 0.30% 0.32% 0.26% 0.65% 0.39% 0.11% 0.29%

SA

5.04%
299

5.05%
211

4.78%
519

4.82%
293

4.74%
259

4.66%
153

4.57%
172

4.58%
195

4.50%
184

4.46%
239

4.34%
161

4.24%
150

4.18%
234

4.15%
234

4.03%
324

Assessing the Change in Labor Market Conditions

On average for 2015, the labor market conditions index (LMCI) will have a slightly positive value, noting that the expansion of labor market conditions are soon to end.
The following table is an updated monthly report from the Fed staff, summarizing a single indicator of labor market conditions in the US
US Federal Reserve Labor market conditions index (LMCI)
LMCI As Reported
Base 50
Month
NSA
SA Trend NSA
SA Trend
Jan-14
2.5
6.0
5.7 52.5 56.0
55.7
Feb-14
2.9
7.6
5.7 52.9 57.6
55.7
Mar-14
5.9
6.7
5.6 55.9 56.7
55.6
Apr-14
8.1
5.5
5.4 58.1 55.5
55.4
May-14
7.0
5.1
5.3 57.0 55.1
55.3
Jun-14
5.5
5.2
5.3 55.5 55.2
55.3
Jul-14
3.2
5.1
5.3 53.2 55.1
55.3
Aug-14
2.8
5.9
5.2 52.8 55.9
55.2
Sep-14
4.9
5.5
5.1 54.9 55.5
55.1
Oct-14
6.2
4.0
5.0 56.2 54.0
55.0
Nov-14
7.2
3.1
4.8 57.2 53.1
54.8
Dec-14
7.0
3.4
4.6 57.0 53.4
54.6
Jan-15
3.4
3.9
3.0 53.4 53.9
53.0
Feb-15
1.5
4.2
2.8 51.5 54.2
52.8
Mar-15
-0.8
4.0
2.5 49.2 54.0
52.5
Apr-15
-0.5
2.4
2.1 49.5 52.4
52.1
May-15
1.6
1.3
1.7 51.6 51.3
51.7
Jun-15
1.7
1.3
1.4 51.7 51.3
51.4
Jul-15
1.5
1.6
1.1 51.5 51.6
51.1
Aug-15
1.7
1.2
0.9 51.7 51.2
50.9
Sep-15
1.5
0.2
0.6 51.5 50.2
50.6
Oct-15
2.2
-1.1
0.3 52.2 48.9
50.3
Nov-15
0.5
-1.1
-0.1 50.5 48.9
49.9
Dec-15
1.3
-2.2
-0.6 51.3 47.8
49.4
Latest data, change
NSA
SA Trend NSA
SA Trend
Monthly
-1.7
-0.0
-0.4 -1.7
-0.0
-0.4
Annual
-6.7
-4.2
-5.0 -6.7
-4.2
-5.0
Year Avg.
NSA
SA Trend NSA
SA Trend
2004
7.2
7.2
7.2 57.2 57.2
57.2
2005
6.9
6.9
6.9 56.9 56.9
56.9
2006
4.1
4.1
4.1 54.1 54.1
54.1
2007
-1.5
-1.5
-1.5 48.5 48.5
48.5
2008
-19.2 -19.2 -19.2 30.8 30.8
30.8
2009
-10.1 -10.1 -10.1 39.9 39.9
39.9
2010
6.1
6.1
6.1 56.1 56.1
56.1
2011
5.9
5.9
5.9 55.9 55.9
55.9
2012
3.7
3.7
3.7 53.7 53.7
53.7
2013
4.0
4.0
4.0 54.0 54.0
54.0
2014
5.3
5.3
5.3 55.3 55.3
55.3
2015
1.3
1.3
1.3 51.3 51.3
51.3
2016
-2.4
-2.4
-2.4 47.6 47.6
47.6
1977~2016 Average
0.3
0.3
0.3 50.3 50.3
50.3
St. Deviation
9.6
8.2
7.7
9.6
8.2
7.7
Max
28.7
27.6
22.4 78.7 77.6
72.4
Min
-43.0 -24.2 -20.4
7.0 25.8
29.6
Own estimate SA and Trend is our own estimate
Last data Note: Fed Working paper
Note: On average, from February 1980 until April 2014, under conditions of expanding the estimate issued by the Fed it has had an average of +4, while in terms of contraction of the labor
market conditions indicator has a value of -20