The FOMC’s statement today is going to be clarified a bit further if you look at the comments from Ben Bernanke and friends that came out at 2 PM EST today. What is important to know is that while the FOMC kept the FOMC language as exceptionally low through at least late in 2014, the real opinions are a bit different and some of the targets have been altered.
Today’s news is that 9 of 17 officials see rates at or below 1.0% through the end of 2014. That is not a promise not to raise rates, but that is indicative of exceptionally low remaining at 1% or under for that ‘extended period.’ It is also worth noting that 7 Fed officials rather than the prior number of 5 Fed officials see rate hikes starting in 2014.
GDP is being put in a range of 2.4% to 2.9% in 2012, 2.7% to 3.1% in 2013 , and 3.1% to 3.6% in 2014. Longer-run GDP growth is being put at 2.3% To 2.6%. This is a slight economic downgrade but the unemployment rate is being talked down on the flip-side.
The Fed sees unemployment coming back into a range of 5.2% to 6.0% in the longer-run with the following unemployment targets now: 7.8% to 8.0% in 2012; 7.3% to 7.7% in 2013; and 6.7% to 7.4% in 2014.
The Federal Reserve is also putting longer-term inflation around 2.0%, but Cor-inflation is being targeted as follows: 1.8% to 2.0% in 2012; 1.7% to 2.0% in 2013; and 1.8% to 2.0% in 2014.
Remember, the Federal Reserve and FOMC have the dual-mandate of helping to keep the economy at full employment while keeping a cap on inflation.
JON C. OGG
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