The Wall Street Journal’s Jon Hilsenrath
has a fascinating, lengthy breakdown todayof how the Fed decided not to touch its bond buying program at its September meeting, and the apparent missteps along the way.
Among other things, it confirms the Fed wasn’t exactly blown away by the incoming economic data, which ultimately forced them to delay the tapering of their stimulative large-scale asset purchase program.
As the June FOMC meeting approached, some members suggested tying the next tweak to monetary policy to the unemployment rate. But it was the way they referred to it that was interesting:
“In a flurry of emails and phone calls before the gathering and at a dinner during the event, several officials zeroed in on an idea some people called “The Seven-Per-Cent Solution,” a reference to a 1976 Sherlock Holmes film in which the fictional detective becomes addicted to cocaine. Several officials argued at the meeting that the Fed should signal bond buying would end when the jobless rate fell to near 7%, according to people familiar with the talks.”
Hilsenrath goes on to describe how this idea ultimately surfaced in a Ben Bernanke news conference.
“When asset purchases ultimately come to an end, the unemployment rate would likely be in the vicinity of 7%, with solid economic growth supporting further job gains,” Bernanke said.