Good afternoon, as you know from our policy statement released a short time ago the Federal Open Market Committee reaffirmed the current 0 to .25% target range for the Federal funds rate. Since the committee met in July, the pace of job gains has been solid. The unemployment rate has declined. And overall labor market conditions have continued to improve. Inflation, however, has continued to run below our longer-run objective. Partly reflecting declines in energy and import prices.
Where we still expect that the downward pressure on inflation from these factors will fade over time, recent global economic and financial developments are likely to put further downward pressure on inflation in the near term. These developments may also restrain U.S. activities somewhat. But have not led at this point to a significant change in the committee's outlook for the U.S. economy.
The committee continues to anticipate that the first increase in the Federal funds rate will be appropriate when it has seen some further improvement in the labor market and is reasonably confident that inflation will move back to its 2% objective over the medium term.
It remains the case that the committee will determine the timing of the initial increase based on its assessment of the implications of incoming information for the economic outlook.
I will note that the importance of the initial increase should not be overstated. The stance of monetary policy will likely remain highly accommodative for quite some time after the initial increase in the Federal funds rate in order to support continued progress toward our objectives with maximum employment and 2% inflation.
I will come back to today's policy decision in a few moments. But first I would like to review recent economic developments and the outlook.
Smoothing through the quarterly volatility, U.S. real gross domestic product is estimated to have expanded at a 2.25% pace in the first half of the year. A notably stronger outcome than expected in June when committee participants had submitted economic projections.
Continued job gains and increases in real disposable income have supported household spending.
Growth in business fixed investment was moderate. Held down in part by a significant contraction in oil drilling activity as a result of the large drop in oil prices over the past year.
Moreover, net exports were a substantial drag on GDP growth during the first half of the year. Reflecting the earlier appreciation of the dollar and weaker foreign demand.
The committee continues to expect a moderate pace of overall GDP growth, even though the restraint from net exports is likely to persist for a time.
The labor market has shown further progress so far this year toward our objective of maximum employment. Over the past three months, job gains average 220,000 per month. The unemployment rate at 5.1% in August was down four-tenths of a percent from the latest reading available at the time of our June meeting. Although that decline was accompanied by some reduction in the labor force participation rate over the same period.
A broader measure of unemployment that includes individuals who want and are available to work but have not actively searched recently. And people who are working part time but would rather work full time has continued to improve.
That said, some cyclical weakness likely remains. While the unemployment rate is close to most FOMC participants estimates of the longer run normal level, the participation rate is still below estimates of its underlying trend. And voluntary part-time employment remains elevated and wage growth remains subdued.
Inflation has continued to run below our 2% objective. Partly reflecting declines in energy and import prices.
