March FOMC Meeting Minutes

March FOMC Meeting Minutes

U.S. Inflation Still Below FOMC Target

At the Federal Reserve’s March Federal Open Market Committee (FOMC) meeting the FOMC reported it would continue to taper asset purchases in its QE3 program. The FOMC reduced long-term Treasury purchases and mortgage-backed securities purchases by $5 billion each per month. New Federal Reserve Chairman Janet Yellen also indicated an increase to the federal funds rate could be in store in 2015.

The FOMC continues to focus on two main goals for monetary policy decisions, price stabilization and maximum employment.

Price stabilization centers around a focus on the Bureau of Economic Analysis’ PCE Price Index report. The most recent report released on March 28 showed a decrease in the 12-month rate for the PCE Price Index. In February the 12-month PCE Price Index showed an inflation rate of 0.9%, down from 1.2% in January. The Core PCE Price Index which excludes food and energy remained at 1.1%.

The Core PCE Price Index showed continued stabilization in inflation in the U.S. economy while the PCE Price Index overall declined slightly to 0.9% and fell farther from the FOMC’s target inflation rate goal of 2.0%.

On Wednesday, April 9 the FOMC will release its March FOMC Meeting Minutes which may provide additional insight into the FOMC’s perspective and outlook for the two U.S. economic indicators that help guide its decisions on monetary policy. 

March U.S. Employment Reports

Wednesday, April 2, 2014: ADP National Employment Report

The U.S. private sector added 191,000 jobs in March.

Friday, April 4, 2014: BLS Employment Situation Report
In March the BLS reported a total increase of 192,000 jobs to the U.S. labor market. The U.S. unemployment rate remained unchanged at 6.7%.

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U.S. Market Indicators

While the Employment Situation and PCE Index are important U.S. market indicators for the Federal Reserve, U.S. gross domestic product data also plays a role in determining monetary policy.

In the Commerce Department’s most recent GDP report the Bureau of Economic Analysis (BEA) reported a 3.2% fourth quarter increase in U.S. GDP from the third quarter of 2013. This increase followed a 4.1% quarterly increase in the third quarter. However, for the year the BEA reported a 1.9% annual GDP increase.

In the fourth quarter Personal Consumption Expenditure and Gross Private Domestic Investment increased 3.3% and 3.4% respectively while Government Consumption Expenditures and Gross Investment decreased 4.9%.

Personal Consumption Expenditure had the greatest increase in Goods adding 4.9% while Services also increased 2.5%. In Gross Private Domestic Investment Fixed Investment products increased 0.9% and Residential decreased 9.8%.

Federal Government Expenditures and Investments decreased 12.6% in the fourth quarter with National Defense decreasing 14%. State and Local Government Expenditures increased 0.5% in the fourth quarter.

While the national unemployment rate has decreased to 6.6% and the PCE Index inflation rate is 1.2%, the GDP report showed signs of slower improvement in the underlying gross domestic product data.