Fed Makes Major Shift

The Federal Reserve may go from moving the goal posts to removing them altogether when it comes to setting interest rate expectations.  Those goal posts have come in the form of economic numbers—more specifically, 6 percent unemployment and 2 percent inflation—that, if hit, would trigger interest rate increases.

But many central bank watchers agree that the use of those targets—part of “forward guidance,” in Fed parlance—is reaching an end. Chair Janet Yellen tipped her hand after the last Fed Open Market Committee meeting, and market participants believe the use of the unemployment and inflation targets is about to go away for good.

Instead, the Fed is likely now to rely increasingly on the more-nebulous “data dependent” terminology for when it will lift its target funds rate off the floor, and won’t wed itself to the specific targets first delineated in 2012.


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