Federal Open Market Committee (FOMC) Maintains Fed Funds
Rate Unchanged at 3 ½ to 3 ¾ Percent, Prices of Personal Consumption Expenditures Excluding Food and Energy Increase 3.3 Percent in 12 Months
I United States Inflation
IA Mediocre Cyclical United States Economic Growth
IA1 Stagnating Real Private Fixed Investment
IID United States International Terms of Trade
I United States Employment Situation
I Real Disposable
Income
I United States Industrial Production
I United States Inflation
II Long-term United States Inflation
III Current United States Inflation
IV Global Inflation
V World Economic Slowdown
VA United States
VB Japan
VC China
VD Euro Area
VE Germany
VF France
VG Italy
VH United Kingdom
VI Valuation of Risk Financial Assets
VII Economic Indicators
VIII Interest Rates
IX Conclusion
References
Appendixes
Appendix I The Great Inflation
IIIB Appendix on Safe Haven Currencies
IIIC Appendix on Fiscal Compact
IIID Appendix on European Central Bank Large Scale Lender
of Last Resort
IIIG Appendix on Deficit Financing of Growth and the Debt
Crisis
IV Global Inflation
V World Economic Slowdown
VA United States
VB Japan
VC China
VD Euro Area
VE Germany
VF France
VG Italy
VH United Kingdom
VI Valuation of Risk Financial Assets
VII Economic Indicators
VIII Interest Rates
IX Conclusion
References
Appendixes
Appendix I The Great Inflation
IIIB Appendix on Safe Haven Currencies
IIIC Appendix on Fiscal Compact
IIID Appendix on European Central Bank Large Scale Lender
of Last Resort
IIIG Appendix on Deficit Financing of Growth and the Debt
Crisis
© Carlos M. Pelaez, 2009, 2010, 2011, 2012, 2013, 2014,
2015, 2016, 2017, 2018, 2019, 2020, 2021, 2022, 2023, 2024, 2025, 2026.
Note: This Blog will post only the Preamble of the US
economy while we concentrate efforts in completing a book-length manuscript in
the critically important subject of INFLATION.
Federal Open Market Committee (FOMC) Maintains Fed Funds
Rate Unchanged at 3 ½ to 3 ¾ Percent
© Carlos M. Pelaez, 2009, 2010, 2011, 2012, 2013, 2014,
2015, 2016, 2017, 2018, 2019, 2020, 2021, 2022, 2023, 2024, 2025, 2026.
Note: This Blog will post only the Preamble of the US
economy while we concentrate efforts in completing a book-length manuscript in
the critically important subject of INFLATION.
There is no deflation in the US
economy that could justify further unconventional monetary policy open-ended or
forever with very low interest rates and cessation of bond-buying by the
central bank but with reinvestment of interest and principal, or QE→∞ even if the economy grows back
to potential. The FOMC engaged in increases in the Fed balance sheet. Financial
repression of very low interest rates constituted protracted distortion of
resource allocation by clouding risk/return decisions, preventing the economy
from expanding along its optimal growth path. On Aug 22, 2025, the Federal
Open Market Committee changed its Longer-Run Goals and Monetary Policy
Strategy, including the following (https://www.federalreserve.gov/monetarypolicy/monetary-policy-strategy-tools-and-communications-statement-on-longer-run-goals-monetary-policy-strategy-2025.htm): “Durably achieving maximum employment fosters broad-based
economic opportunities and benefits for all Americans. The Committee views
maximum employment as the highest level of employment that can be achieved on a
sustained basis in a context of price stability. The maximum level of
employment is not directly measurable and changes over time owing largely to
nonmonetary factors that affect the structure and dynamics of the labor market.
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.
Price stability is
essential for a sound and stable economy and supports the well-being of all
Americans. The inflation rate over the longer run is primarily determined by
monetary policy, and hence the Committee can 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 maximum employment and price stability mandates.
The Committee judges that longer-term inflation expectations that are well
anchored at 2 percent foster price stability and moderate long-term interest
rates and enhance the Committee's ability to promote maximum employment in the
face of significant economic disturbances. The Committee is prepared to act
forcefully to ensure that longer-term inflation expectations remain well
anchored.
” emphasis added).
The statement of the FOMC
at the conclusion of its meeting on Dec 12, 2012, revealed policy intentions (http://www.federalreserve.gov/newsevents/press/monetary/20121212a.htm). The FOMC updated in the
statement at its meeting on Dec 16, 2015 with maintenance of the current level
of the balance sheet and liftoff of interest rates (http://www.federalreserve.gov/newsevents/press/monetary/20151216a.htm) followed by the statement
of Jun17, 2026 (https://www.federalreserve.gov/newsevents/pressreleases/monetary20260617a.htm): “Press Release
June 17, 2026
Federal
Reserve issues FOMC statement
For release at 2:00 p.m.
EDT
The Federal Open Market
Committee approved the following statement for release by a 12 – 0 vote:
The Committee decided to
maintain the target range for the federal funds rate at 3-1/2 to 3-3/4 percent,
in support of the Federal Reserve's dual mandate. The Committee reaffirmed its
policy of maintaining ample reserves in the banking system.
Economic activity is
expanding at a solid pace despite elevated uncertainty that owes, in part, to
the conflict in the Middle East. Productivity growth and capital investment are
strong. Job gains have kept pace with the workforce, and the unemployment rate
has changed little.
Inflation remains
elevated relative to the Committee's 2 percent goal, in part reflecting supply
shocks that have driven price increases in certain sectors, including energy.
The Committee will deliver price stability.
For media inquiries,
please email media@frb.gov or call 202-452-2955.
Implementation Note issued June 17, 2026
Last Update: June 17, 2026”
In his classic restatement of the Keynesian demand function
in terms of “liquidity preference as behavior toward risk,” James Tobin (http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/1981/tobin-bio.html)
identifies the risks of low interest rates in terms of portfolio allocation
(Tobin 1958, 86):
“The assumption that
investors expect on balance no change in the rate of interest has been adopted
for the theoretical reasons explained in section 2.6 rather than for reasons of
realism. Clearly investors do form expectations of changes in interest rates
and differ from each other in their expectations. For the purposes of dynamic
theory and of analysis of specific market situations, the theories of sections
2 and 3 are complementary rather than competitive. The formal apparatus of
section 3 will serve just as well for a non-zero expected capital gain or loss
as for a zero expected value of g. Stickiness of interest rate expectations
would mean that the expected value of g is a function of the rate of interest
r, going down when r goes down and rising when r goes up. In addition to the
rotation of the opportunity locus due to a change in r itself, there would be a
further rotation in the same direction due to the accompanying change in the
expected capital gain or loss. At low interest rates expectation of
capital loss may push the opportunity locus into the negative quadrant, so that
the optimal position is clearly no consols, all cash. At the other extreme,
expectation of capital gain at high interest rates would increase sharply the
slope of the opportunity locus and the frequency of no cash, all consols
positions, like that of Figure 3.3. The stickier the investor's expectations, the
more sensitive his demand for cash will be to changes in the rate of interest
(emphasis added).”
Tobin (1969) provides
more elegant, complete analysis of portfolio allocation in a general
equilibrium model. The major point is equally clear in a portfolio consisting
of only cash balances and a perpetuity or consol. Let g be the
capital gain, r the rate of interest on the consol and re the
expected rate of interest. The rates are expressed as proportions. The price of
the consol is the inverse of the interest rate, (1+re).
Thus, g = [(r/re) – 1]. The critical
analysis of Tobin is that at extremely low interest rates there is only
expectation of interest rate increases, that is, dre>0,
such that there is expectation of capital losses on the consol, dg<0.
Investors move into positions combining only cash and no consols.
Valuations of risk financial assets would collapse in reversal of long
positions in carry trades with short exposures in a flight to cash. There is no
exit from a central bank created liquidity trap without risks of financial
crash and another global recession. The net worth of the economy depends on
interest rates. In theory, “income is generally defined as the amount a
consumer unit could consume (or believe that it could) while maintaining its
wealth intact” (Friedman 1957, 10). Income, Y, is a flow that is
obtained by applying a rate of return, r, to a stock of
wealth, W, or Y = rW (Friedman
1957). According to a subsequent statement: “The basic idea is simply that
individuals live for many years and that therefore the appropriate constraint
for consumption is the long-run expected yield from wealth r*W.
This yield was named permanent income: Y* = r*W”
(Darby 1974, 229), where * denotes permanent. The simplified relation of income
and wealth can be restated as:
W = Y/r (1)
Equation
(1) shows that as r goes to zero, r→0, W grows
without bound, W→∞. Unconventional monetary policy lowers interest
rates to increase the present value of cash flows derived from projects of
firms, creating the impression of long-term increase in net worth. An attempt
to reverse unconventional monetary policy necessarily causes increases in
interest rates, creating the opposite perception of declining net worth.
As r→∞, W = Y/r →0. There
is no exit from unconventional monetary policy without increasing interest
rates with resulting pain of financial crisis and adverse effects on
production, investment and employment.
Table IV-6
provides percentage changes in 12 months of prices of personal consumption
expenditures.
The target
of monetary policy is PCEX (Prices of Personal Consumption Expenditures) that
increased from 1.8 percent in the 12 months ending in Jan 1919 to 3.3 percent
in the 12 months ending in April 2026, which is the latest available
observation, well above the target of around 2 percent.
Table IV-6, US, Percentage Change in 12 Months of Prices of
Personal Consumption
Expenditures ∆%
|
|
PCE |
PCEG |
PCEG |
PCES |
PCEX |
PCEF |
PCEE |
|
2026 |
|
|
|
|
|
|
|
|
Apr |
3.8 |
4.4 |
3.4 |
3.5 |
3.3 |
2.5 |
18.3 |
|
Mar |
3.5 |
3.8 |
3.3 |
3.4 |
3.2 |
1.7 |
14.4 |
|
Feb |
2.9 |
1.8 |
2.8 |
3.3 |
3.0 |
2.3 |
-0.2 |
|
Jan |
2.9 |
1.3 |
2.1 |
3.6 |
3.1 |
2.0 |
-0.9 |
|
2025 |
|
|
|
|
|
|
|
|
Dec |
2.9 |
1.7 |
2.0 |
3.4 |
3.0 |
2.1 |
2.2 |
|
Nov |
2.8 |
1.5 |
1.0 |
3.4 |
2.8 |
2.0 |
4.4 |
|
Oct |
2.7 |
1.3 |
0.9 |
3.4 |
2.8 |
2.2 |
2.7 |
|
Sep |
2.8 |
1.4 |
0.9 |
3.4 |
2.8 |
2.4 |
2.7 |
|
Aug |
2.7 |
0.9 |
1.2 |
3.6 |
2.9 |
2.2 |
-0.1 |
|
Jul |
2.6 |
0.6 |
1.1 |
3.6 |
2.9 |
1.8 |
-1.9 |
|
Jun |
2.6 |
0.6 |
1.0 |
3.5 |
2.8 |
2.0 |
-1.3 |
|
May |
2.5 |
0.1 |
0.5 |
3.6 |
2.8 |
1.8 |
-3.8 |
|
Apr |
2.3 |
-0.3 |
-0.4 |
3.5 |
2.6 |
1.7 |
-4.2 |
|
Mar |
2.4 |
-0.3 |
-1.1 |
3.6 |
2.7 |
1.9 |
-3.8 |
|
Feb |
2.7 |
0.3 |
-1.0 |
3.8 |
3.0 |
1.4 |
-0.6 |
|
Jan |
2.6 |
0.5 |
-1.2 |
3.6 |
2.8 |
1.6 |
0.7 |
|
2024 |
|
|
|
|
|
|
|
|
Dec |
2.7 |
-0.1 |
-1.3 |
4.0 |
3.0 |
1.6 |
-1.0 |
|
Nov |
2.6 |
-0.4 |
-1.2 |
4.0 |
3.0 |
1.4 |
-4.0 |
|
Oct |
2.5 |
-1.0 |
-1.7 |
4.1 |
3.0 |
1.0 |
-6.0 |
|
Sep |
2.3 |
-1.2 |
-1.8 |
3.9 |
2.8 |
1.2 |
-8.1 |
|
Aug |
2.4 |
-0.9 |
-2.1 |
4.0 |
2.9 |
1.1 |
-5.0 |
|
Jul |
2.6 |
-0.2 |
-2.4 |
3.9 |
2.8 |
1.2 |
0.4 |
|
Jun |
2.5 |
-0.4 |
-2.8 |
4.0 |
2.8 |
1.3 |
0.4 |
|
May |
2.7 |
-0.3 |
-3.1 |
4.1 |
2.8 |
1.2 |
3.0 |
|
Apr |
2.8 |
0.0 |
-2.1 |
4.2 |
3.0 |
1.3 |
1.8 |
|
Mar |
2.9 |
0.0 |
-1.9 |
4.3 |
3.1 |
1.5 |
1.4 |
|
Feb |
2.7 |
-0.3 |
-2.1 |
4.2 |
3.1 |
1.4 |
-2.2 |
|
Jan |
2.7 |
-0.5 |
-2.3 |
4.3 |
3.2 |
1.5 |
-4.6 |
|
2023 |
|
|
|
|
|
|
|
|
Dec |
2.8 |
0.1 |
-2.2 |
4.1 |
3.1 |
1.5 |
-2.1 |
|
Nov |
2.8 |
-0.2 |
-2.0 |
4.2 |
3.3 |
1.8 |
-5.9 |
|
Oct |
3.0 |
0.3 |
-2.1 |
4.4 |
3.5 |
2.5 |
-4.7 |
|
Sep |
3.4 |
1.0 |
-2.2 |
4.7 |
3.7 |
2.8 |
0.1 |
|
Aug |
3.4 |
0.8 |
-1.7 |
4.8 |
3.8 |
3.2 |
-3.7 |
|
Jul |
3.4 |
-0.2 |
-0.9 |
5.2 |
4.3 |
3.8 |
-13.2 |
|
Jun |
3.3 |
-0.4 |
-0.5 |
5.2 |
4.4 |
4.8 |
-17.6 |
|
May |
4.0 |
1.2 |
0.4 |
5.4 |
4.7 |
5.9 |
-12.3 |
|
Apr |
4.5 |
2.2 |
0.6 |
5.6 |
4.8 |
7.0 |
-5.7 |
|
Mar |
4.4 |
2.0 |
0.5 |
5.7 |
4.8 |
8.0 |
-7.9 |
|
Feb |
5.2 |
3.7 |
0.4 |
6.0 |
4.9 |
9.5 |
4.1 |
|
Jan |
5.5 |
4.6 |
0.7 |
6.0 |
4.9 |
10.6 |
7.8 |
|
2022 |
|
|
|
|
|
|
|
|
Dec |
5.5 |
4.8 |
1.6 |
5.8 |
5.0 |
11.1 |
6.7 |
|
Nov |
6.0 |
6.3 |
2.8 |
5.9 |
5.2 |
11.1 |
13.6 |
|
Oct |
6.5 |
7.4 |
4.1 |
6.0 |
5.5 |
11.5 |
18.3 |
|
Sep |
6.7 |
8.2 |
5.7 |
5.9 |
5.6 |
11.7 |
20.0 |
|
Aug |
6.6 |
8.6 |
5.4 |
5.6 |
5.4 |
12.2 |
24.0 |
|
Jul |
6.8 |
9.6 |
5.7 |
5.3 |
5.1 |
11.8 |
33.6 |
|
Jun |
7.2 |
10.7 |
6.3 |
5.5 |
5.3 |
11.0 |
43.1 |
|
May |
6.8 |
9.9 |
7.1 |
5.3 |
5.2 |
10.6 |
35.8 |
|
Apr |
6.7 |
9.7 |
8.5 |
5.2 |
5.3 |
9.6 |
31.4 |
|
Mar |
6.9 |
10.6 |
10.1 |
5.1 |
5.6 |
8.9 |
33.2 |
|
Feb |
6.5 |
9.6 |
10.8 |
5.0 |
5.6 |
7.6 |
26.5 |
|
Jan |
6.3 |
8.8 |
10.5 |
5.0 |
5.4 |
6.4 |
28.2 |
|
2021 |
|
|
|
|
|
|
|
|
Dec |
6.1 |
8.5 |
9.2 |
5.0 |
5.2 |
5.6 |
30.3 |
|
Nov |
5.9 |
8.2 |
8.4 |
4.8 |
4.9 |
5.4 |
34.0 |
|
Oct |
5.3 |
7.4 |
7.9 |
4.3 |
4.4 |
4.6 |
30.3 |
|
Sep |
4.7 |
6.1 |
6.8 |
4.1 |
4.0 |
4.0 |
25.0 |
|
Aug |
4.6 |
5.6 |
6.8 |
4.1 |
4.0 |
2.8 |
25.0 |
|
Jul |
4.5 |
5.5 |
6.9 |
4.0 |
3.9 |
2.4 |
23.7 |
|
Jun |
4.3 |
5.4 |
7.2 |
3.8 |
3.9 |
1.0 |
24.4 |
|
May |
4.1 |
5.1 |
5.6 |
3.6 |
3.5 |
0.7 |
27.4 |
|
Apr |
3.6 |
4.1 |
3.9 |
3.4 |
3.1 |
1.1 |
24.0 |
|
Mar |
2.7 |
2.4 |
1.6 |
2.8 |
2.2 |
3.0 |
13.2 |
|
Feb |
1.8 |
0.9 |
1.0 |
2.3 |
1.7 |
3.3 |
1.8 |
|
Jan |
1.6 |
0.4 |
1.3 |
2.2 |
1.7 |
3.5 |
-4.6 |
|
2020 |
|
|
|
|
|
|
|
|
Dec |
1.3 |
-0.1 |
1.4 |
2.0 |
1.5 |
4.0 |
-7.5 |
|
Nov |
1.2 |
-0.5 |
0.6 |
2.0 |
1.5 |
3.7 |
-9.7 |
|
Oct |
1.2 |
-0.6 |
0.2 |
2.1 |
1.4 |
3.8 |
-9.2 |
|
Sep |
1.3 |
-0.4 |
-0.1 |
2.1 |
1.5 |
3.7 |
-8.0 |
|
Aug |
1.2 |
-0.5 |
-0.1 |
2.0 |
1.4 |
4.1 |
-9.8 |
|
Jul |
0.9 |
-1.1 |
-1.2 |
1.9 |
1.2 |
4.1 |
-11.7 |
|
Jun |
0.8 |
-1.5 |
-2.5 |
1.8 |
1.0 |
5.0 |
-12.4 |
|
May |
0.5 |
-2.2 |
-1.9 |
1.8 |
1.0 |
4.5 |
-18.3 |
|
Apr |
0.5 |
-2.1 |
-1.9 |
1.7 |
1.0 |
3.9 |
-17.7 |
|
Mar |
1.2 |
-1.0 |
-1.5 |
2.2 |
1.5 |
1.2 |
-6.4 |
|
Feb |
1.7 |
0.3 |
-1.6 |
2.4 |
1.7 |
0.9 |
3.3 |
|
Jan |
1.8 |
0.7 |
-2.0 |
2.3 |
1.6 |
0.9 |
8.3 |
|
2019 |
|
|
|
|
|
|
|
|
Dec |
1.6 |
0.4 |
-1.7 |
2.1 |
1.5 |
0.7 |
3.8 |
|
Nov |
1.4 |
-0.2 |
-1.3 |
2.1 |
1.5 |
0.9 |
-0.6 |
|
Oct |
1.3 |
-0.7 |
-0.9 |
2.2 |
1.6 |
1.1 |
-4.9 |
|
Sep |
1.3 |
-0.7 |
-0.8 |
2.2 |
1.6 |
0.8 |
-4.9 |
|
Aug |
1.4 |
-0.4 |
-1.1 |
2.3 |
1.7 |
0.9 |
-4.0 |
|
Jul |
1.5 |
-0.4 |
-1.2 |
2.3 |
1.6 |
0.9 |
-1.5 |
|
Jun |
1.4 |
-0.4 |
-0.4 |
2.3 |
1.7 |
1.1 |
-2.8 |
|
May |
1.5 |
-0.3 |
-1.1 |
2.3 |
1.6 |
1.3 |
-0.2 |
|
Apr |
1.6 |
-0.2 |
-1.2 |
2.4 |
1.6 |
0.8 |
1.4 |
|
Mar |
1.5 |
-0.1 |
-0.7 |
2.3 |
1.6 |
1.4 |
-0.4 |
|
Feb |
1.4 |
-0.7 |
-0.5 |
2.4 |
1.7 |
1.4 |
-5.6 |
|
Jan |
1.4 |
-0.8 |
-0.7 |
2.5 |
1.8 |
0.8 |
-6.0 |
Notes: percentage changes in price index relative to the
same month a year earlier of PCE: personal consumption expenditures; PCEG: PCE
goods; PCEG-D: PCE durable goods; PCES: PCE services; PCEX: PCE excluding food
and energy; PCEF: PCE food; PCEE: PCE energy goods and services
Source: US Bureau of Economic Analysis https://apps.bea.gov/iTable/index_nipa.cfm
© Carlos M. Pelaez, 2009, 2010, 2011, 2012, 2013, 2014,
2015, 2016, 2017, 2018, 2019, 2020, 2021, 2022, 2023, 2024, 2025, 2026.
