Magazine article Economic Trends

Monetary Policy

Magazine article Economic Trends

Monetary Policy

Article excerpt

At its November 10 meeting, the Federal Open Market Committee (FOMC) raised its target for the federal funds rate from 1.75% to 2%--just above the inflation rate for core personal consumption expenditures (PCE) over the past year. A quarter-point hike had been widely anticipated in financial markets.

The action was also consistent with the FOMC's recent pattern of policy announcements and actions. After its May meeting, it adopted statement language noting that "the Committee believes that policy accommodation can be removed at a measured pace." At all four meetings since May, the FOMC has chosen to raise the fed funds rate target 25 basis points and to repeat the statement language. Futures and options prices during the weeks before each meeting placed high probabilities on the outcomes ultimately chosen. Thus, quarter-point hikes have been viewed as a measured pace of policy tightening.

Two weeks before the FOMC's November meeting, however, prices for futures and options revealed a possible break in the recent pattern. Specifically, they implied that policymakers would maintain the measured pattern at their November meeting, but then would probably pause, leaving the target rate unchanged in December. During the summer, incoming data indicated that economic activity was weaker than expected, which suggested that policy was no longer as accommodative. Implied yields began to recede from their June 14 peaks. In late October, however, data suggested that a pickup might be at hand. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.