What does the Federal Reserve mean when it says monetary policy remains "accommodative"?

In general, monetary policy is considered to be "accommodative" when it aims to make interest rates sufficiently low to spur strong enough economic growth to reduce unemployment or to prevent unemployment from rising. For example, toward the end of 2008, in the midst of the global financial crisis and Great Recession, with unemployment above 6-1/2 percent and rising, and inflation below 2 percent and expected to decline, the Federal Open Market Committee (FOMC) pushed short-term interest rates to nearly zero. The FOMC then embarked on a series of large-scale asset purchase programs to reduce longer-term interest rates.

By December 2015, the unemployment rate had come down to 5 percent and there had been considerable improvement in a broad range of indicators of labor market conditions. The Committee projected further improvement, and it was reasonably confident that inflation would rise to 2 percent over the medium term after prices of energy and imported goods stop declining. Considering the economic outlook and the fact that policy actions take time to affect the economy, the FOMC decided to increase its target range for the federal funds rate by 1/4 percentage point. The stance of monetary policy remains accommodative after this increase in the sense that interest rates remain low enough to support further strengthening in labor market conditions and a return to 2 percent inflation.

To learn more about how the Committee's assessment of the economic situation, its outlook for the economy, and its current stance of monetary policy, read the Committee's postmeeting statement or meeting minutes here: http://www.federalreserve.gov/monetarypolicy/fomccalendars.htm.

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Last Update: December 16, 2015