US Fed Under Yellen Might Become Less Specific in Statements

anet Yellen’s first policy-setting meeting as chair of the U.S. Federal Reserve will focus on how to finesse a rewriting of the central bank’s promise to keep interest rates low without roiling financial markets.

Fed policymakers will probably decide next week to scrap their threshold of a 6.5 percent unemployment rate for considering a rate rise, and instead embrace new language that is less specific about when tighter policy might come.

The threshold has been a staple of the central bank’s so-called forward guidance since December 2012, when it was first adopted to underscore a commitment to stimulus until the U.S. economy was on surer footing.

But the U.S. unemployment rate has come down with surprising speed, and now stands at 6.7 percent, leaving Fed officials anxious to adopt guidance more in keeping with their view that the economy won’t be ready for higher rates for some time to come. The trick for Yellen will be re-crafting the statement without changing expectations in markets, which currently don’t see a rate rise until midway through next year.

“This is probably a reasonable time to revamp the statement to take out that 6.5 percent threshold because it’s not really providing any great value,” William Dudley, the influential president of the New York Fed, said last week. “I’d rather do it before we reach the threshold rather than after.”

via Reuters

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