Fed renews rates statement, expresses labor market concerns

September 17, 2014, 6:32 PM UTC
Fed Chair Janet Yellen Monetary Policy Report To The Senate Banking Committee
Janet Yellen, chair of the U.S. Federal Reserve, speaks during a Senate Banking Committee hearing in Washington, D.C., U.S., on Thursday, Feb. 27, 2014. Yellen repeated that the central bank is likely to maintain its strategy of gradually trimming asset purchases even as it takes time for the job market to recover. Photographer: Andrew Harrer/Bloomberg via Getty Images
Photo by Bloomberg — Getty Images

The Fed stuck with familiar language as it announced Wednesday that there remains “significant underutilization” of the labor market and expects to maintain rates for a “considerable” time after its bond-buying program ends.

Observers were keeping a close eye on both of those phrases in a Federal Open Market Committee statement issued Wednesday afternoon — terms that remain consistent with a statement the Fed issued in late July. The Fed’s intention for short-term rates was more closely watched, especially as the bond-buying program has gain been reduced and is expected to fully wind down in the fourth quarter of this year.

Notably, two members of the committee voted against the monetary policy action announced on Wednesday. Richard Fisher, president of the Federal Reserve Bank of Dallas, said continued strength in the economy, an improved labor outlook and general pricing stability warranted “an earlier reduction in monetary accommodation” than suggested in the Fed committee’s guidance. Charles Plosser, meanwhile, objected to the “considerable time” language, saying it is time dependent and doesn’t reflect the considerable economic progress that has been made. Plosser is president of the Federal Reserve Bank of Philadelphia.

Some observers had been hopeful that the Fed would move more toward a data-dependent statement rather than one that is time-focused, as it has been since March.

The Fed’s comments comes as the U.S. economy appears to be performing well of late, with the second-quarter rebound stronger than initially anticipated after a harsh winter temporarily dented the economic recovery earlier this year. Observers say a number of metrics — including the housing market, consumer spending, business capital and government spending — are all performing fairly well.

The labor market remains a concern, and Fed Chair Janet Yellen herself has said that the job market has yet to fully recover. The U.S. economy added a disappointing 142,000 jobs in August, the slowest pace of hiring so far in 2014 though the unemployment rate fell slightly to 6.1%.

The Fed’s concerns about the labor market were still a focus on Wednesday, with the committee statement saying that while conditions have improved, “the unemployment rate is little changed and a range of labor market indicators suggests that there remains significant underutilization of labor resources.”

For more on Yellen and her approach to monetary policy, see John Cassidy’s Fortune article “Janet Yellen vs. the Inflation Zombies.”

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