SUMMARY Economic activity increased at a solid pace objective of 2 percent. The price index for over the second half of 2017. and the labor personal consumption expenditures increased market continued to strengthen measured 1. 7 percent over the 12 months ending in on a 12-month basis. inflation has remained December 2017. about the same as in 2016 below the Federal Open Market Committee's The 12-month measure of inflation that (FOMC) longer-run objective of 2 percent. excludes food and energy items(so-called The FOMC raised the target range for the core inflation), which historically has been federal funds rate twice in the first half of a better indicator of where overall inflation 2017, resulting in a range of l to 1 4 percent will be in the future than the headline figure, by the end of its June meeting. With the was 1.5 percent in December-0 4 percentage federal funds rate rising toward more normal point lower than it had been one year earlier levels, at its September meeting, the FOMC However, monthly readings on core infation decided to initiate a program of gradually were somewhat higher during the last few and predictably reducing the size of its months of 2017 than earlier in the year balance sheet. At its meeting in December. Measures of longer-run inflation expectations the Committee judged that current and have, on balance, been generally stable, prospective economic conditions called for although some measures remain low by a further increase in the target range for the historical standards federal funds rate, to 14 to 12 percent Economic growth. Real gross domestic product Economic and financial (GDP)is reported to have increased at an Developments annual rate of nearly 3 percent in the second half of 2017 after rising slightly more than The labor market. The labor market has 2 percent in the first half. Consumer spending continued to strengthen since the middle of expanded at a solid rate in the second half, last year. Payroll employment has posted solid supported by job gains, rising household gains, averaging 182,000 per month in the wealth and favorable consumer sentiment seven months starting in July 2017, about the Business investment growth was robust, and same as the average pace in the first half of indicators of business sentiment have been 2017. Although net job creation last year was strong. The housing market has continued slightly slower than in 2016, it has remained to improve slowly. Foreign activity remained considerably faster than what is needed solid and the dollar depreciated further in the on average to absorb new entrants into the second half, but net exports subtracted from labor force. The unemployment rate declined real U.S. GDP growth as imports of consumer from 4.3 percent in June to 4.1 percent in and capital goods surged late in the year. January-somewhat below the median of FOMC participants' estimates of its longer Financial conditions. Financial conditions run normal level. Other measures of labor for businesses and households have utilization also suggest that the labor market eased on balance since the middle of has tightened since last summer. nonetheless 017 amid an improving global growth wage growth has been moderate, likely held outlook. Notwithstanding financial market down in part by the weak pace of productivity developments in recent weeks, broad measures growth in recent years of equity prices are higher, and spreads of yields on corporate bonds over those of Inflation. Consumer price inflation has comparable-maturity Treasury securities have remained below the fomc's longer-run narrowed. Most types of consumer loans1 Summary Economic activity increased at a solid pace over the second half of 2017, and the labor market continued to strengthen. Measured on a 12-month basis, inflation has remained below the Federal Open Market Committee’s (FOMC) longer-run objective of 2 percent. The FOMC raised the target range for the federal funds rate twice in the first half of 2017, resulting in a range of 1 to 1¼ percent by the end of its June meeting. With the federal funds rate rising toward more normal levels, at its September meeting, the FOMC decided to initiate a program of gradually and predictably reducing the size of its balance sheet. At its meeting in December, the Committee judged that current and prospective economic conditions called for a further increase in the target range for the federal funds rate, to 1¼ to 1½ percent. Economic and Financial Developments The labor market. The labor market has continued to strengthen since the middle of last year. Payroll employment has posted solid gains, averaging 182,000 per month in the seven months starting in July 2017, about the same as the average pace in the first half of 2017. Although net job creation last year was slightly slower than in 2016, it has remained considerably faster than what is needed, on average, to absorb new entrants into the labor force. The unemployment rate declined from 4.3 percent in June to 4.1 percent in January—somewhat below the median of FOMC participants’ estimates of its longer￾run normal level. Other measures of labor utilization also suggest that the labor market has tightened since last summer. Nonetheless, wage growth has been moderate, likely held down in part by the weak pace of productivity growth in recent years. Inflation. Consumer price inflation has remained below the FOMC’s longer-run objective of 2 percent. The price index for personal consumption expenditures increased 1.7 percent over the 12 months ending in December 2017, about the same as in 2016. The 12-month measure of inflation that excludes food and energy items (so-called core inflation), which historically has been a better indicator of where overall inflation will be in the future than the headline figure, was 1.5 percent in December—0.4 percentage point lower than it had been one year earlier. However, monthly readings on core inflation were somewhat higher during the last few months of 2017 than earlier in the year. Measures of longer-run inflation expectations have, on balance, been generally stable, although some measures remain low by historical standards. Economic growth. Real gross domestic product (GDP) is reported to have increased at an annual rate of nearly 3 percent in the second half of 2017 after rising slightly more than 2 percent in the first half. Consumer spending expanded at a solid rate in the second half, supported by job gains, rising household wealth, and favorable consumer sentiment. Business investment growth was robust, and indicators of business sentiment have been strong. The housing market has continued to improve slowly. Foreign activity remained solid and the dollar depreciated further in the second half, but net exports subtracted from real U.S. GDP growth as imports of consumer and capital goods surged late in the year. Financial conditions. Financial conditions for businesses and households have eased on balance since the middle of 2017 amid an improving global growth outlook. Notwithstanding financial market developments in recent weeks, broad measures of equity prices are higher, and spreads of yields on corporate bonds over those of comparable-maturity Treasury securities have narrowed. Most types of consumer loans