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 31, 2017

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. The Committee would be

concerned if inflation were running persistently above or below this objective. Communicating this symmetric 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, the median of FOMC

participants’ estimates of the longer-run normal rate of unemployment was 4.8 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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