Economic activity is expanding at a solid pace despite elevated uncertainty that owes, in part, to the conflict in the Middle East, The Federal Open Market Committee (FOMC) said in its policy statement.
Productivity growth and capital investment are strong. Job gains have kept pace with the workforce, and the unemployment rate has changed little, it said.
Inflation remains elevated relative to the Committee’s 2 percent goal, in part reflecting supply shocks that have driven price increases in certain sectors, including energy. The Committee will deliver price stability, the statement added.
Meanwhile three of the 12 policymakers voted against the status quo monetary policy action and called for a rate hike.
Beth M. Hammack, Neel Kashkari, and Lorie K. Logan, the presidents of the Fed’s Cleveland, Dallas and Minneapolis regional banks voted for a 25 basis point hike.
“The economy is showing impressive resilience. Even with recent shocks, the trends are positive and reveal solid growth. Job gains have kept pace with the workforce, and the unemployment rate has changed little,” Federal Reserve chairman Kevin Warsh said in a press conference, after his second FOMC meeting as Chairman.
Inflation remains elevated relative to the Committee’s 2 percent goal. The Committee remains resolute. You’ve heard this before, but we will deliver price stability, he said.
“As before, the policy statement conveys just the facts. It’s steering clear of forecasting, a choice we consider especially prudent at these uncertain times. Uncertainty, however, does not mean a lack of clarity,” Warsh said.
For some households, businesses, and market professionals, five years of high inflation have left a mistaken impression that is hard to shake: that the Fed’s implicit inflation target was somehow above 2 per cent, he said.
“Let me reiterate: There is no soft inflation target, there is no soft implicit target —not on this Committee’s watch. There is only a target, and it is 2 percent. Not one of my FOMC colleagues is under any illusion. We have begun a new chapter, and we understand that the five-plus years of inflation above target cannot be cured in nine weeks—or by a single month of modest price decreases,” Warsh said.
“I want to stress, of course, that decisions by this Committee matter a great deal. And where necessary and appropriate, we will not hesitate to act,” he said.