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Wednesday, April 9, 2014

FOMC Minutes Highlight Discussions Around Forward Guidance, Inflation

The FOMC minutes from the March 18-19 meeting highlight the FOMC’s discussions around changing the unemployment rate threshold. It was previously at 6.5%, but as that is rapidly approaching and the economy is not as strong as originally predicted, the FOMC moved to change its forward guidance.

Inflation has been consistently below the committee’s long run objective. The FOMC seems to be taking note. “A couple of members preferred to include language in the statement indicating that the Committee would keep rates low if projected inflation remained persistently below the Committee’s 2 percent longer-run objective. One of these members argued that the Committee should continue to provide quantitative thresholds for both the unemployment rate and Inflation.”

Several FOMC members commented that their median projection for the main interest rate likely overstated the speed of tightening. The minutes state that, “Several participants noted that the increase in the median projection overstated the shift in the projections.” There was concern that forecasts, “could be misconstrued as indicating a move by the committee to a less accommodative reaction function.”

It appears as though the committee will continue tapering by $10 billion a month. For the first time, the committee commented on maintaining the current pace of the economy stays on path. It noted that, "if the economy continued to develop as anticipated, the committee would likely reduce the pace of asset purchases in further measured steps at future meetings.”

Read the FOMC minutes.

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