Released just a short while ago, economic activity is expanding at a solid pace. While uncertainty remains elevated, owing in part to geopolitical developments, domestic spending has been resilient, productivity growth strong, and capital investment is robust. Job gains have kept pace with the workforce and the unemployment rate has changed little, but inflation remains elevated. Today's policy action will support a timelier return to the committee's 2% goal. This committee will deliver price stability.
Now, I'll get into some further detail. Our decision comes at a time when the American economy appears to be strengthening. New hiring, private sector earnings, business capital investment — each of these markers has improved in recent months and is pointing in a good direction. Credit flows have been robust, particularly for businesses. And as I said at the policy symposium in Jackson Hole, I would be hardpressed to describe broad financial conditions as restrictive. This view was widely shared by the committee. So we removed a dose of accommodation. Consider the geopolitical landscape of shocks and uncertainty and you begin to appreciate the resilience of the US economy. Given that resilience and the potential for even greater performance, an attitude of optimism is exactly what I heard inside the FOMC these last two days.
One basic sign of strength is the state of America's labor markets. The jobless rate remains low at around 4.1%. And both job openings and weekly hours have been increasing. Unemployment claims on a 4-week moving average are running at levels consistent with full employment. So the labor side of the Fed's congressional remit is in good shape. Yet for more than five years, inflation has been running above target. So our predominant focus is on the price stability side of our mandate. The plain fact is that inflation is too high and has been for too long. This summer's inflation readings do not tell me that underlying trends have meaningfully improved. Based on the most recent CPI and PPI data, the 12-month change in total PCE prices likely was around 3.6% in August. Core PCE and CPI prices running at about 3.2 and 2.4% respectively. Too many categories are still posting increases above 3% on both a six and 12-month basis.
I noted in Jackson Hole that overall commodity prices also bear watching and over the interim period the prices of many of these key inputs have risen. Since my first FOMC meeting as chairman in June, my colleagues and I have been unequivocal in our commitment to price stability and to our 2% PCE inflation objective. At our July meeting, we all agreed that inflation remained too high and we expressed our joint readiness to act as circumstances might require, and a good majority of my colleagues and I thought the wiser course then would be to await new information in the interim period. Last month in Wyoming, I expressed my commitment to a monetary policy discipline, not to a decision. I define the standard for action: we must be confident that underlying inflation is moving to our objective clearly and at sufficient speed.
Today, the FOMC decided that this standard has not been satisfied. The committee's unanimous vote shows our resolve to achieve price stability on a timelier basis. We aim to ensure that credit and financial conditions are consistent over time with our mandate — that relative price changes in some sectors of the economy do not broaden, that inflation compensation in market prices stays low, and that inflation expectations remain well anchored. This afternoon you also received the summary of economic projections. It reflects the views of my colleagues on the committee. But as in June, I've not offered a projection of my own. But like in June, I said I would faithfully discharge the summary of their projections. So here goes. In the summary's median projections, real GDP rises at 2.3% this year, 2.4% next year. Total PCE inflation runs at 3.7% this year and falls to 2.3% next year. The unemployment rate holds steady at about 4.1%. The median participant judges that the appropriate federal funds rate to be 4.1% at the end of this year and to remain there next year. Inflation risks are to the upside while labor risks are roughly balanced.
In my meetings these last few weeks — in Jackson Hole, in Asheville at the G20 meeting which the US hosted, and at a central bank conference in Basel — it was evident that most advanced economies are facing price pressures. Their central banks are making their own judgments consistent with their own remits. Our decision today reflects our best judgment in service to our remit. The Fed has a role in sustaining the economic progress happening in America right now and the rising opportunities that come with it. Those who are least well off have the most to gain from a durable expansion, a solid labor market, and stable prices. We at the Fed are unwavering in our vital and straightforward purpose: full employment and price stability, and a thriving American economy that sets the standard for the world. And with that, I'll take a few of your questions.
Chair Warsh, thank you for doing this. I'm Richard Escobido with CBS. Let me navigate over to my questions. You know, a quarter point rate hike does not represent a string of further moves. And so I wonder how you think these smaller rate hikes will be effective when it can't necessarily address the energy supply side of inflationary pressures.
Yeah, it's a good question. Richard, we cannot affect any individual price, whether it be oil prices, whether it be food stuffs at the grocery store. But what we can do and will do is ensure that any change in relative prices don't broaden out, don't have second and third order effects in the economy. That's what we're tasked to do and that's what we will do.
Thank you. Colby Smith in the New York Times. When the Fed starts raising rates, it generally follows with a sequence of hikes. Is there anything different in today's assessment of the economic conditions that would suggest that the typical pattern does not apply? And I guess second to that, what impact do you expect higher rates to have at this juncture if the bulk of what is keeping inflation elevated is stemming from supply shocks?
So, we're trying to get to more people. So, I now get to cherry-pick my preferred question from you, Colby. This won't surprise you. I'm not in the forward guidance business. The decision we made today was a sober decision, serious decision, responsible decision, one that we have been preparing for and thinking about in my 110 or 120 days here. You heard from other people in the dots effectively what their forecasts are. I'm not going to prejudge any future decisions we make. You might have heard me say in Jackson Hole, I committed to a discipline, a set of principles. I committed to look outside the window and see what I can observe. That's what I did in Jackson Hole. That's what we did today.
Thank you, Mr. Chairman. Edward Lawrence from Fox Business. So the market priced in a 90% chance of a rate hike today. You don't want the Fed to lead the markets. Was this a market-led rate hike? And then with that, the bond yields are going up. That's one of the indicators. Is debt part of that issue?
So, I've said this before, I'll repeat it. The Fed has an enormous amount of power. These are decisions we make. But getting the understanding right between financial markets and the Fed is a balance that I've long thought could be better struck. We made this decision today based on our assessment of the situation, based on our assessment of the trajectory for employment, based on our judgment on the strength of the economy. Sometimes the market tries to prejudge our outcomes. I'll observe market prices and see what they have to say, but today was our decision.
Steve Thompson, Washington,
Thanks so much. Elizabeth Schelsey with ABC News. Big picture. I wonder if you could tell us just what will this move today actually do for American consumers, and I have to ask: what is your message here to President Trump who has repeatedly called to cut interest rates, not raise them?
I've got nothing for you on a discussion with the president. So, but I won't make that count as your question. On the American people, as I said in my prepared remarks, the least well-off are the ones who have the most to gain from stable prices. The decision we made today was the right decision to deliver on the remit that Congress gave us to ensure stable prices. Moreover, I would say because of the underlying strength of the economy, because we are, as I mentioned, largely acting consistent with full employment, we can be focused on stable prices. Some months ago, I said we will deliver stable prices. Today's action is consistent with that.
Hi, how are you? Thank you. Can you tell us a little more about what changed from the July meeting when, as you noted, the Fed did stand pat until today? And as part of that, could you give us a sense of whether or not things like the retail sales report today suggested that demand is heating up and possibly threatening higher prices as well? Thank you.
Yeah. So, as you might know, I'm not a data point dependent guy. So I won't react one way or another to data that shows up on our doorstep. But on your first question, I think the more important one: what transpired in the seven weeks since we last met. First, I would say a good majority of my colleagues seven weeks ago thought seven weeks is a good investment. It's a way to buy time so we can make a wise decision. I'll highlight three things that have happened in that interim meeting period. One is I may have had a judgment seven weeks ago about the strength of the economy. There's been a pretty wide ranging set of data including the labor markets that the economy has strengthened. You might have heard me say that in Jackson Hole a few weeks ago. It's a judgment that I have and the committee has. Second, inflation trends. I said in Jackson Hole, trends matter. I said in Jackson Hole, we need to look outside the window and interrogate reality. My judgment some weeks ago was the inflation summer trends weren't passing the test. I've seen very little information since that would make me reverse that decision. So, I've stuck with it. And the third thing that's changed in seven weeks are geopolitics and there's no hiding from hot spots around the world and our judgment about what is the most likely or least likely of the geopolitical situation has changed. All three of those things lend themselves to a firm unanimous decision today.
You said today's decision removes a dose of accommodation. In your view, and perhaps if you could share views around the table too, are interest rates now at a level that you would describe as restrictive or not? Thank you.
I've described previously I found it difficult to describe financial conditions as restrictive. I think I said I was hardpressed. What I heard around the table in the last couple of days is my colleagues were hardpressed to describe it that way too. We removed a dose of accommodation so that financial and credit conditions would be more consistent with our ultimate objectives. That was the decision. That was our judgment. And we'll continue to evaluate that prospectively.
Thank you, Mr. Chairman. Steve Leman, CNBC. I want to follow up on that question. Previously most Fed officials had described the rate as modestly restrictive and if you removed accommodation, could you give us your sense of where the Fed funds rate is relative to neutral and some detail if you wouldn't mind on your sense of is there a short-term neutral rate you're aiming for and a longer term neutral rate. Do you think in terms of those?
In a word, no. In a few words, I'd say this. I've always been interested in a neutral rate as an academic matter. Back when I learned economics, we used to think of it as a Wicksellian rate. It's a real equilibrium rate. It's useful academically. It's a discussion to help us think about policy. Do I think it has any operational effect on decisions that we make today? No, I don't.
Hi, Victoria Aguido with Politico. I wanted to ask, you've talked about how you don't like data dependence, including today. But heading into this meeting, there was a ton of focus on the August CPI, and I'm wondering if you think that was appropriate on the part of markets or if you have learned anything about how you might approach communications going forward.
So market participants and reporters I think generally over the course of the last decade or so have grown accustomed to waiting somewhat breathlessly on a data point. That isn't my view. I was not waiting breathlessly on what any particular data was whether it was retail sales this morning or a CPI print last week. I'll just reiterate: trends matter. Data points are noisy. Data point dependence is a dangerous preoccupation. It's not something that concerns me. Markets over time will come to understand how this Fed makes its decisions, what's relevant and not. And I wouldn't want to editorialize that for them beyond it.
