Question
The FOMC statement of December 12, 2012, indicated that the target range for the federal funds rate would continue at least until the rate of
The FOMC statement of December 12, 2012, indicated that the target range for the federal funds rate would continue at least until the rate of unemployment falls below 6 percent or the projected rate of inflation one to two years ahead exceeds the FOMCs two- percent objective by one-half percentage point. From January until December 2012, plot the effective federal funds (FRED code: FEDFUNDS), the unemployment rate (FRED code: UNRATE) and the inflation rate based on the percent change from a year ago of the core price index for personal consumption expenditures (FRED code: PCEPILFE). Judging by the data, would you expect FOMC interest-rate policy to change soon? Answer: (LO 2) The FOMCs statement set thresholds, rather than triggers, for changing the interest rate target. Based on information available at the time of the December 2012 meeting, inflation and unemployment were changing only slowly, with the unemployment rate well above the threshold that might lead to Fed action, and with inflation falling below the Feds target, rather than rising above it toward the threshold. Consequently, it seemed unlikely that the interest rate target would rise for an extended period. In fact, most FOMC members did not expect the federal funds rate to rise before 2015.
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