Research - APRIL 10, 2014

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FOMC minutes show uncertainty surround forward guidance

by Reg Clodfelter

The recently released minutes to the Federal Open Market Committee’s March 18–19 board meeting show that while almost all participants agreed there was a need to scrap the “outdated” Evans rule (which set a 6.5 percent lower threshold for unemployment that determines how long the Federal Reserve will continue to suppress interest rates), there was uncertainty as to how the committee would update its forward guidance policy.

The impetus to update the forward guidance policy was sparked by the unemployment rate inching its way toward the 6.5 percent threshold, with a February rate of 6.7 percent. It was determined that, economically, it was not the right time to raise interest rates, so the lower threshold

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