Tags: Fed | watchers | forward | guidance

CNBC: Some Fed Watchers Expect End to Explicit Forward Guidance

By    |   Thursday, 02 October 2014 08:40 PM

In its September policy statement the Federal Reserve said the timing of its first interest-rate hike will depend on when inflation moves closer to its 2 percent target.

In the past, the Fed also cited 6 percent unemployment as a threshold for considering a rate increase. But now the central bank may drop this "forward guidance" in favor of "data dependent" criteria, Fed watchers say, according to CNBC.

"The need for timely flexibility and data-dependent discretion would make the [policy-making Federal Open Market] Committee's lockstep adherence to an obsolete forward guidance policy unwise," Bob Eisenbeis, chief monetary economist at Cumberland Advisors, wrote in a commentary on SNL Financial's web site.

"In effect, what we have seen is the rational abandonment of forward guidance as a useful policy tool in favor of discretion."

Many economists expect the Fed to begin increasing rates around mid-2015. The central bank has kept its federal funds rate target at a record low of zero to 0.25 percent since December 2008.

But Harvard economist Martin Feldstein says the Fed may act sooner. "I would not be surprised by a continued rise in the inflation rate in 2015," he writes on Project Syndicate. "In that case, the Fed is likely to raise the federal funds rate more rapidly and to a higher year-end [2015] level than its recent statements imply."

The median forecast of Fed officials is for a 1.375 percent fed funds rate at the end of next year.

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The Federal Reserve may drop its "forward guidance" in favor of "data dependent" criteria, observers of the central bank tell CNBC.
Fed, watchers, forward, guidance
Thursday, 02 October 2014 08:40 PM
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