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 29, 2019

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 longerrun normal rate of unemployment was 4.4 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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