Wednesday, December 12, 2012

The Fed Takes Another Step in the Right Direction

How I love printing money.

But seriously, the Fed just announced a new set of actual RULES it intends to use as guidelines to set monetary policy for the next several years. Basically, its a committment to keep the Fed funds rate at zero and continue the $40 billion a month in asset purchases until unemployment falls below 6.5% or inflation rises above 2.5%. Its not targeting the TIPs spread, or NGDP, but its something- and a sign of good things to come. Check it.

"To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored. The Committee views these thresholds as consistent with its earlier date-based guidance. In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments."

From here:

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