WASHINGTON (MNI) – The Federal Open Market Committee released the
following statement Wednesday following its two-day monetary policy
meeting, in conjunction with the new economic projections:

The FOMC’s Longer-Run Goals and Policy Strategy

Following careful deliberations at its recent meetings, the Federal
Open Market Committee (FOMC) has reached broad agreement on the
following principles regarding its longer-run goals and monetary policy
strategy. The Committee intends to reaffirm these principles and to make
adjustments as appropriate at its annual organizational meeting each
January.

The 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 Committees 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 Committees 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 judges 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 Reserves 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
Committees 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 Committees 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 FOMCs 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 6.0 percent, roughly unchanged from last January but
substantially higher than the corresponding interval several years
earlier.

In setting monetary policy, the Committee seeks to mitigate
deviations of inflation from its longer-run goal and deviations of
employment from the Committees 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.

** Market News International Washington Bureau: 202-371-2121 **

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