Fed Announces New Targets for Policy Adjustments
Posted at 2:14 p.m. on Dec. 12, 2012
The Federal Open Market Committee released its latest policy statement today, making what Matthew Yglesias describes as a “game-changing” shift in policy.
FT Alphaville: “Expected changes, unexpectedly soon. Not just the widely anticipated announcement that the Fed would continue buying long-end Treasuries after the end of Twist, but also a switch from using a calendar date (previously set at mid-2015) to economic objectives for estimating approximately when the committee will raise rates in the future.”
Tim Duy has more details about the new economic targets: “The baseline expectation is that as long as unemployment remains above 6.5%, the Fed will tolerate an inflation forecast as high as 2.5% in the near term, assuming that long-term expectations remain anchored, before considering to raise rates. In other words, all bets are off if the Fed judges that long-term expectations are accelerating even if unemployment and near-term inflation forecasts remain within their respective bounds.”