The Atlanta Fed's macroblog provides commentary and analysis on economic topics including monetary policy, macroeconomic developments, inflation, labor economics, and financial issues.
- BLS Handbook of Methods
- Bureau of Economic Analysis
- Bureau of Labor Statistics
- Congressional Budget Office
- Economic Data - FRED® II, St. Louis Fed
- Office of Management and Budget
- Statistics: Releases and Historical Data, Board of Governors
- U.S. Census Bureau Economic Programs
- White House Economic Statistics Briefing Room
January 02, 2013
What the FOMC Said: More Clarification
UC San Diego professor Jim Hamilton is in my opinion one of the blogosphere's best commentators on Fed policy, and his most recent post at Econbrowser has a nice, concise retrospective on U.S. monetary policy over the past four years. But in the nobody's perfect category, there is one bit that I think requires a correction:
At the most recent FOMC meeting, the Fed signaled that QE3 purchases will continue as long as the unemployment rate remains above 6.5% and inflation below 2.5%.
Actually, those thresholds apply to the period of time that the members of the Federal Open Market Committee (FOMC) currently expect the federal funds rate target to remain near its zero lower bound. They do not apply to the duration of the FOMC's asset-purchase programs.
Once again, I will turn to Fed Chairman Ben Bernanke's words at his last post-meeting press conference:
Unlike the explicitly quantitative criteria associated with the Committee's forward guidance about the federal funds rate, which I will discuss in a moment, the criteria the Committee will use to make decisions about the pace and extent of its asset purchase program are qualitative; in particular, continuation of asset purchases is tied to our seeing substantial improvement in the outlook for the labor market. Because we expect to learn more over time about the efficacy and potential costs of asset purchases in the current economic context, we believe that qualitative guidance is more appropriate at this time.
The Chairman goes on to explicitly discuss the 6.5 percent/2.5 percent thresholds on the forward guidance regarding the funds rate, and he circles back to the distinction between that guidance and the "QE3 purchases":
It's worth noting that the goals of the FOMC's asset purchases and of its federal funds rate guidance are somewhat different. The goal of the asset purchase program is to increase the near-term momentum of the economy by fostering more-accommodative financial conditions, while the purpose of the rate guidance is to provide information about the future circumstances under which the Committee would contemplate reducing accommodation. I would emphasize that a decision by the Committee to end asset purchases, whenever that point is reached, would not be a turn to tighter policy. While in that circumstance the Committee would no longer be increasing policy accommodation, its policy stance would remain highly supportive of growth. Only at some later point would the Committee begin actually removing accommodation through rate increases. Moreover, as I have discussed today, the decisions to modify the asset purchase program and to undertake rate increases are tied to different criteria.
The separate moving pieces of interest rate policy and the Fed's asset purchase program are subtle, and I admit at times confusing. But as monetary policy moves forward, it is important to keep the distinctions front and center.
Update: Jim Hamilton has updated his January 1 blog post regarding the Fed's policy intentions.
By Dave Altig, executive vice president and research director at the Atlanta Fed
TrackBack URL for this entry:
Listed below are links to blogs that reference What the FOMC Said: More Clarification :
- Hitting a Cyclical High: The Wage Growth Premium from Changing Jobs
- Thoughts on a Long-Run Monetary Policy Framework, Part 4: Flexible Price-Level Targeting in the Big Picture
- Thoughts on a Long-Run Monetary Policy Framework, Part 3: An Example of Flexible Price-Level Targeting
- Thoughts on a Long-Run Monetary Policy Framework, Part 2: The Principle of Bounded Nominal Uncertainty
- Thoughts on a Long-Run Monetary Policy Framework: Framing the Question
- What Are Businesses Saying about Tax Reform Now?
- A First Look at Employment
- Weighting the Wage Growth Tracker
- GDPNow's Forecast: Why Did It Spike Recently?
- How Low Is the Unemployment Rate, Really?
- April 2018
- March 2018
- February 2018
- January 2018
- November 2017
- October 2017
- September 2017
- August 2017
- July 2017
- May 2017
- Business Cycles
- Business Inflation Expectations
- Capital and Investment
- Capital Markets
- Data Releases
- Economic conditions
- Economic Growth and Development
- Exchange Rates and the Dollar
- Fed Funds Futures
- Federal Debt and Deficits
- Federal Reserve and Monetary Policy
- Financial System
- Fiscal Policy
- Health Care
- Inflation Expectations
- Interest Rates
- Labor Markets
- Latin America/South America
- Monetary Policy
- Money Markets
- Real Estate
- Saving, Capital, and Investment
- Small Business
- Social Security
- This, That, and the Other
- Trade Deficit
- Wage Growth