Statement on Longer-Run Goals and Monetary Policy Strategy

Statement on Longer-Run Goals and Monetary Policy Strategy

Adopted effective January 24, 2012; as amended effective January 27, 2015

The Federal Open Market Committee

(FOMC) is firmly committed to fulfilling its

statutory mandate from the Congress of promoting maximum employment, stable prices,

and moderate long-term interest rates. The

Committee seeks to explain its monetary policy decisions to the public as clearly as possible. Such clarity facilitates well-informed

decisionmaking by households and businesses, reduces economic and financial uncertainty, increases the effectiveness of monetary

policy, and enhances transparency and accountability, which are essential in a democratic society.

Inflation, employment, and long-term interest rates fluctuate over time in response to

economic and financial disturbances. Moreover, monetary policy actions tend to influence economic activity and prices with a lag.

Therefore, the Committee’s policy decisions

reflect its longer-run goals, its medium-term

outlook, and its assessments of the balance of

risks, including risks to the financial system

that could impede the attainment of the Committee’s goals.

The inflation rate over the longer run is

primarily determined by monetary policy, and

hence the Committee has the ability to specify

a longer-run goal for inflation. The Committee reaffirms its judgment that inflation at the

rate of 2 percent, as measured by the annual

change in the price index for personal consumption expenditures, is most consistent

over the longer run with the Federal Reserve’s

statutory mandate. Communicating this inflation goal clearly to the public helps keep

longer-term inflation expectations firmly anchored, thereby fostering price stability and

moderate long-term interest rates and enhancing the Committee’s ability to promote maximum employment in the face of significant

economic disturbances. The maximum level

of employment is largely determined by nonmonetary factors that affect the structure and

dynamics of the labor market. These factors

may change over time and may not be directly

measurable. Consequently, it would not be

appropriate to specify a fixed goal for employment; rather, the Committee’s policy decisions must be informed by assessments of

the maximum level of employment, recognizing that such assessments are necessarily uncertain and subject to revision. The Committee considers a wide range of indicators in

making these assessments. Information about

Committee participants’ estimates of the

longer-run normal rates of output growth and

unemployment is published four times per

year in the FOMC’s Summary of Economic

Projections. For example, in the most recent

projections, FOMC participants’ estimates of

the longer-run normal rate of unemployment

had a central tendency of 5.2 percent to 5.5

percent.

In setting monetary policy, the Committee

seeks to mitigate deviations of inflation from

its longer-run goal and deviations of employment from the Committee’s assessments of its

maximum level. These objectives are generally complementary. However, under circumstances in which the Committee judges that

the objectives are not complementary, it follows a balanced approach in promoting them,

taking into account the magnitude of the deviations and the potentially different time horizons over which employment and inflation are

projected to return to levels judged consistent

with its mandate.

The Committee intends to reaffirm these

principles and to make adjustments as appropriate at its annual organizational meeting

each January.

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