"Several participants noted that the increase in the median projection overstated the shift" in individual members' projections, according to the minutes.
The minutes also reveal the Fed held a March 4 meeting by video conference, where members agreed that the Fed's threshold for starting to raise rates -- when the unemployment rate reached 6.5% -- was becoming outdated. The unemployment rate fell below 7.0% in December.
MARKETS: Stocks fly as doves soar
FED MINUTES: Full text
As it turned out, the Fed officials were prescient. On March 19, stock markets fell sharply when policymakers' forecasts showed that they expected the Fed's benchmark short-term interest rate to rise to 2.25% by the end of 2016, up from their previous estimate of 1.75%.
Fed Chair Janet Yellen told reporters to focus on the Fed's statement, which provided assurances that rates likely would stay low well after the unemployment rate and inflation return to normal levels. Some economists were dubious and said the Fed was sending mixed messages. Further roiling markets was Yellen's suggestion that rates could rise as early as April 2015, sooner than economists anticipated.
The minutes, however, support the notion that the Fed is intent on keeping its short-term rate near zero for an extended period. "A number" of Fed policymakers voiced concern that the rise in the interest rate forecast "could be misconstrued as indicating" an earlier increase in rates. Several said the increase "overstated the shift in the projections."
Fed officials noted "that the post-meeting statements, rather than the (projections) provide the public with information on the committee's monetary policy decisi! ons."
Another concern for financial markets was that the Fed at last month's meeting eliminated the 6.5% unemployment rate threshold it had set for considering its first interest rate hike. With the jobless rate at 6.7% and likely to reach 6.5% within months, the threshold had become meaningless, Fed officials said, because an interest rate increase is not expected until 2015.
Instead, the Fed said it would review a range of labor market and inflation indicators, including the number of long-term unemployed Americans and the ranks of those working part-time who prefer full-time work. At least one Fed policymaker and some economists said the change could foreshadow an earlier increase in rates.
Yet most policymakers favored adding explicit language to the statement to indicate that the Fed's new guidance "did not imply a change in the committee's policy intentions."
Fed officials were so concerned about the need to revise the 6.5% threshold that the central bank's policymaking committee held an unusual video conference meeting on March 4, two weeks before the scheduled meeting, to discuss the subject. During the video conference, most policymakers agreed that the threshold was outdated but they made no policy decisions.
At the March 18-19 meeting, most officials favored eliminating a specific threshold. But one policymaker supported lowering the unemployment threshold to 5.5%, according to the minutes. Minnesota Fed President Narayana Kocherlakota has advocated that strategy and was the lone dissenter to last month's vote approving the change in guidance.
Another policymaker favored keeping the 6.5% threshold, arguing that removing it could be viewed as signaling an earlier rate increase, the minutes show. "A few" officials proposed adding language to indicate rates would stay low as long as the inflation outlook looked likely to stay below 2.5%.
The Fed periodically has held unannounced video-conference or conference-call meetings to discuss urgent matters, i! ncluding ! eight others since 2009. Two — last October and in August 2011— dealt with contingency plans in case Congress failed to raise the nation's debt limit. At two others, Fed officials discussed setting a specific inflation target — a step it ultimately took — among other monetary policy issues.
No comments:
Post a Comment