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March 18, 2014

Fed likely to adapt forward guidance at policy meeting

“Janet Yellen’s term as US Federal Reserve chair starts in earnest this Wednesday, with her first monetary policy meeting at the helm likely to be one of the most significant this year.

“At the meeting, to be followed by a press conference, the Fed is likely to adapt its “forward guidance” on future interest rates, and explain more about how it will behave once unemployment falls below its threshold of 6.5 per cent – the level above which it says it will not raise interest rates.

“Although Ms Yellen has testified to Congress since becoming chair, she was constrained by the Federal Open Market Committee’s last decision, so this is the first chance for her to show where she will take monetary policy.

“Barring a colossal market shock from world events, the Fed is likely to taper its asset purchases by another $10bn to $55bn a month, and adopt forward guidance highlighting its willingness to keep interest rates low if inflation does not rise back towards its 2 per cent goal.”

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Read full Financial Times article here.

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