The Federal Reserve has just released a statement detailing its latest decision on monetary policy resulting from the first Federal Open Market Committee meeting under the leadership of Janet Yellen.
The FOMC elected to reduce the monthly pace of its quantitative easing program by another $US10 billion and scrap the 6.5% unemployment rate threshold that previously characterised its forward guidance on the likely future path of short-term interest rates, as was largely expected. It also lowered its GDP and unemployment rate forecasts, but pulled forward its forecasts on the likely timing of rate hikes.
The U.S. dollar and yields on U.S. Treasuries are sharply higher in the wake of the release.
During the press conference following the release, Yellen defended the FOMC’s decision to drop the 6.5% threshold, saying the Committee was watching “many more things” in assessing the health of the labour market. She also said the FOMC was fully committed to its 2% inflation target, and did not want to undershoot it for an extended period of time.
“There is only very limited upward drift,” said Yellen, referring to Committee members’ forecasts for the fed funds rate contained in the FOMC’s updated Staff Economic Projections. Yellen downplayed the importance of the “dot chart” in the SEP, saying it should not be viewed as the Committee’s primary means of communication with the public.
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