Fed Moves Toward Using Economic Data As Guide For First Interest Rate Rise; Also Mulls Using Quantitative Targets To Add Transparency

Thursday, November 15, 2012 07:58
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Fed Moves Toward Using Economic Data As Guide For First Interest Rate Rise; Also Mulls Using Quantitative Targets To Add Transparency

Tags: economic indicators | economy | Federal Reserve

The Fed is moving toward tying interest rate moves to economic data in an effort to create greater transparency around its decisions.

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The minutes released yesterday of the October 23 – 24 Federal Open Market Committee (FOMC) meeting said that policy makers generally favor the use of economic variables to guide them in deciding when the first interest rate hike since 2008 will occur.
 
Several Fed officials cited the possibility of needing to expand existing stimulus programs next year after the expiration of Operation Twist.
 
One official expects the Fed to add monthly purchases of $45 billion of Treasury bills per month to the current $40 billion per month purchases of mortgage bonds.
 
There was no indication of an end date for the bond purchases although the stated goal of the third quantitative easing (QE3) was to support the jobs market until the unemployment rate recovered to acceptable levels.
 
Some officials think that identifying a quantitative number or level would help make the Fed’s actions more transparent. Fed Chief Ben Bernanke feels that greater transparency would add to the potency of Fed actions because the economy is affected by expectations about future policy.

 

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