New Chair Janet Yellen was apparently more eager to take the reins of the Federal Reserve than most of us knew. As Fed-watchers awaited release of the minutes from the regularly scheduled meeting March 18-19, we got the unexpected news that the central bank's policymakers held a video conference in early March.
Unlike during the financial crisis, this extra huddle by the policy panelists wasn't in response to some rapidly unfolding market meltdown. Instead, the members of the Federal Open Market Committee discussed how to best frame "forward guidance" suggesting when the Fed might raise its benchmark interest rate, the federal funds rate.
A re-examination of the 'threshold'
At issue was the Fed's previous message that revolved around a "threshold" 6.5 percent unemployment rate that might trigger a rate hike. Minutes from the March 4 electronic gathering say: "Participants agreed that the existing forward guidance, with its reference to a 6.5 percent threshold for the unemployment rate, was becoming outdated as the unemployment rate continued its expected gradual decline."
This was apparently a way of getting the central bank's ducks lined up for the big meeting later in March.
Yellen took over from Chairman Ben Bernanke in early February.
The mid-March meeting
The minutes of the March 18-19 meeting indicate FOMC members were concerned that their own forecasts for a faster rise in the federal funds rate could mislead the markets and the public into thinking they weren't as likely to keep providing support for the economy. The forecasts were part of a chart, their so-called Summary of Economic Projections.
The minutes mention that some feared the chart could be "misconstrued." During her news conference immediately following the meeting, Yellen said the Fed's official written statement was more important than the chart.
During the meeting, policymakers ditched the promise to keep the federal funds rate low until after the jobless rate hits 6.5 percent. The FOMC now pledges to consider a wider range of qualitative measures when deciding when to begin boosting rates.
The minutes show that all but three of the 16 FOMC members expect rates to rise in 2015. In reaction, IHS Global Insight economist Paul Edelstein says, "We continue to expect the Fed to raise interest rates toward the end of 2015, probably in September."
Inflation hawks vs. economy hawks
At the two-day meeting, the Fed again reduced its monthly asset purchases by $10 billion, now at $55 billion a month, with further reductions in that economic stimulus expected in coming months.
The minutes indicate that one of Yellen's biggest challenges involves bridging the divide between the "inflation hawks" and the "economy hawks" on the open market committee, says economist Joel Naroff, president of Naroff Economic Advisors.
"What you see on this is that the inflation hawks have been wanting to end the asset purchases for a long time now. They would have started a year before the Fed started it and they want it accelerated," Naroff says. The inflation hawks are "not uncomfortable talking about rate hikes."
On the other side, Naroff says others are worried about risking "prematurely stepping on the brake."
Most Fed officials are "willing to err on the side of too much accommodation, rather than too little," says Naroff. The others, he says, are more worried that current policies risk building up inflation pressures.
Assuming another surprise video conference isn't held in the interim, the Fed meets again April 29-30.
Do you think the Fed is worried too much or too little about inflation?
And if the language of the central bank makes your head spin, check out What did the Federal Reserve say?
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