Attention Economy


Tuesday, August 9, 2011

An Odd Commitment from the FOMC

Given the level of uncertainty and rapidly changing expectations, it is a bit unwise for the the Fed to commit itself to keeping rates low at least until mid-2013. Why not just continue to state that rates will remain low for an extended period (and thus avoid putting a specific date). What will the Fed do if there are unforeseen shocks in 2012 that start to rapidly push up inflation in the US?

They key portion of the Fed statement reads:

"To promote the ongoing economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent. The Committee currently anticipates that economic conditions–including low rates of resource utilization and a subdued outlook for inflation over the medium run–are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013."