in raising the federal funds rate is that the federal funds rate is still near its effective lower bound. if inflation were to remain persistently low or the labor market were to weaken, the committee would have only limited room to reduce the target range for the federal funds rate. however, if the economy were to overheat and inflation seemed likely to move significantly or bis central bankers ’ speeches persistently above 2 percent, the fomc could readily increase the target range for the federal funds rate. the fomc continues to anticipate that economic conditions will improve further and that the economy will evolve in a manner that will warrant only gradual increases in the federal funds rate. in addition, the committee expects that the federal funds rate is likely to remain, for some time, below the levels that are expected to prevail in the longer run because headwinds – which include restraint on u. s. economic activity from economic and financial developments abroad, subdued household formation, and meager productivity growth – mean that the interest rate needed to keep the economy operating near its potential is low by historical standards. if these headwinds slowly fade over time, as the committee expects, then gradual increases in the federal funds rate are likely to be needed. in line with that view, most fomc participants, based on their projections prepared for the june meeting, anticipate that values for the federal funds rate of less than 1 percent at the end of this year and less than 2 percent at the end of next year will be consistent with their assessment of appropriate monetary policy. of course, the economic outlook is uncertain, so monetary policy is by no means on a preset course and fomc participants ’ projections for the federal funds rate are not a predetermined plan for future policy. the actual path of the federal funds rate will depend on economic and financial developments and their implications for the outlook and associated risks. stronger growth or a more rapid increase in inflation than the committee currently anticipates would likely make it appropriate to raise the federal funds rate more quickly. conversely, if the economy were to disappoint, a lower path of the federal funds rate would be appropriate. we are committed to our dual objectives, and we will adjust policy as appropriate to foster financial conditions consistent with their attainment over time. the committee is continuing its policy of reinvesting proceeds from maturing treasury securities and principal payments from agency debt and mortgage - backed securities. as highlighted in the statement

janet l yellen : semiannual monetary policy report to the congress testimony by ms janet l yellen, chair of the board of governors of the federal reserve system, before the committee on banking, housing, and urban affairs, us senate, washington dc, 21 june 2016. * * * chairman shelby, ranking member brown, and other members of the committee, i am pleased to present the federal reserve ’ s semiannual monetary policy report to the congress. in my remarks today, i will briefly discuss the current economic situation and outlook before turning to monetary policy. current economic situation and outlook since my last appearance before this committee in february, the economy has made further progress toward the federal reserve ’ s objective of maximum employment. and while inflation has continued to run below our 2 percent objective, the federal open market committee ( fomc ) expects inflation to rise to that level over the medium term. however, the pace of improvement in the labor market appears to have slowed more recently, suggesting that our cautious approach to adjusting monetary policy remains appropriate. in the labor market, the cumulative increase in jobs since its trough in early 2010 has now topped 14 million, while the unemployment rate has fallen more than 5 percentage points from its peak. in addition, as we detail in the monetary policy report, jobless rates have declined for all major demographic groups, including for african americans and hispanics. despite these declines, however, it is troubling that unemployment rates for these minority groups remain higher than for the nation overall, and that the annual income of the median african american household is still well below the median income of other u. s. households. during the first quarter of this year, job gains averaged 200, 000 per month, just a bit slower than last year ’ s pace. and while the unemployment rate held steady at 5 percent over this period, the labor force participation rate moved up noticeably. in april and may, however, the average pace of job gains slowed to only 80, 000 per month or about 100, 000 per month after adjustment for the effects of a strike. the unemployment rate fell to 4. 7 percent in may, but that decline mainly occurred because fewer people reported that they were actively seeking work. a broader measure of labor market slack that includes workers marginally attached to the workforce and those working part - time who would prefer full - time work was unchanged in may and remains above its level prior to the recession. of course, it is important not to overreact