The Fed reduced aid to the economy by another ten billion dollars a month but reiterated that a "highly accommodative" policy remains appropriate. Interest rates thus remain unchanged between 0 and 0,25% and will remain low for "a considerable period" after the end of the asset purchase plan, expected in October. The Fed explained that in "determining how long" it will hold rates at current levels, it will look at both realized and expected progress on its targets for maximum employment and 2% inflation. And rates will remain at current levels for a considerable time after the end of the asset purchase programme, “especially if inflation projections continue to fall below the Commission's long-term 2% target”, provided that estimates in the long term remain stable.
Consumer price data for August was released today, showing a drop of 0,2% compared to July, the first drop since April 2013, against expectations for a zero change. Sotot also expected the trend data to +1,7% against expectations of 1,9%.
YELLEN, RATES RISE WILL DEPEND ON THE ECONOMY
NO SPECIFIC NUMBERS FOR RATE TARGET, BUT RANGES
The Commission also specified that even after employment and inflation have reached levels consistent with the Fed's target, economic conditions could still keep rates below the normal long-term level. "How quickly interest rates go up will depend on the economy," Yellen said at the press conference following the FOMC's decision, adding that the Fed will use a "range" as a target for the Fed Funds rather than a specific number.
Most Fed members expect a rate hike in 2015. Fourteen of 17 members believe a tightening is possible next year, compared with one member who believes it should be brought forward to this year and two who believe the Fed should wait until 2016.
THE ARGUMENTS OF THE HAWKS
WORK IS IMPROVING BUT…
Notably Richard W. Fisher and Charles I. Plosser voted against at the meeting. Fischer stressed that the continued strengthening of the real economy, the improved outlook on labor utilization and general price stability, coupled with continued signs of excesses in financial markets, are likely to lead to a tightening of monetary policy sooner than indicated. the FOMC guidance. Possler argued that the statement "considerable time after the end of the asset purchase program" is based on the "time" factor and does not reflect the considerable economic progress that has been made towards the Commission's goals.
The Fed statement notes that although the labor market has improved, the unemployment rate has changed little, and several indicators suggest that significant labor market slack remains. President Yellen thus appears to be prioritizing supporting economic growth rather than listening to the concerns of those FOMC members who believe a rate hike will be needed sooner.
THE CUT TO US GDP
In the note following the FOMC, the Fed argued that the US economy is expanding at a "moderate" rate and the labor market has improved. And this is why a further cut in stimuli was made, bringing them to a total of 15 billion a month, 10 billion for the purchase of Tresuries and 5 for mortgage-related securities. At the same time, however, the Fed has revised its estimates for US growth in 2014 and 2015 downwards: US GDP will grow in 2014 by 2,0-2,2%, less than the 2,1-2,3% estimated in precedence; in 2015 it will rise by 2,6-3,0% compared to the +3,0-3,2% estimated in June. An improvement of 2016-2,6% is expected for 2,9, while in 2017 it is 2,3-2,5%.
