Fed May Adopt Economic Thresholds for Stimulus

Central bank considers tying low rates to economic data rather than the calendar.

The Federal Reserve signaled it’s moving toward linking its outlook for near-zero interest rates to specific economic conditions such as a decline in the unemployment rate.

The move would represent a shift from the Fed’s policy of tying low rates to the calendar. At its last meeting, the Federal Open Market Committee extended its time horizon at least through the middle of 2015 from late 2014, a decision that some policy makers said could be misinterpreted as a downgrade of their economic outlook, according to minutes of the Sept. 12-13 gathering.

Policy Costs

“Most participants thought these risks could be managed since the committee could make adjustments to its purchases, as needed, in response to economic developments or to changes in its assessment of their efficacy and costs,” the minutes showed.

Automatic Response

Agreeing on details may prove difficult. Some officials said that providing thresholds may be “too simple to fully capture the complexities of the economy and the policy process or could be incorrectly interpreted as triggers prompting an automatic policy response,” the minutes show.

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