The Federal Reserve shocked markets this afternoon by announcing it would not taper its longstanding asset purchasing program.
Most analysts suspected the central bank would institute the taper (even a modest, “lite” one), so Chairman Ben Bernanke had some explaining to do at his press conference.
The major takeaway so far: This is one dovish Ben Bernanke.
“As today’s decision underscores, asset purchases are not on a preset course,” Bernanke said.
That kind of language gives the Fed more wiggle room in terms of monetary policy.
Originally, the Fed wanted to see 7% unemployment before adjusting its third round of quantitative easing. Now, that guideline has been scrapped, allowing for more potential accommodation in the future.
In fact, the FOMC may not even decide to raise the federal funds rate — currently at the zero lower bound — until the unemployment rate is “considerably below” the 6.5% threshold.
The chairman made sure to stress it was a “threshold,” not a trigger. It may seem like an inconsequential difference, but not in central banking.
Upcoming fiscal headwinds played in part in the FOMC’s decision, Bernanke said. The government will soon (once again) decide whether or not to raise the debt limit, which has the potential to rile markets.
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