Semi-Daily Journal

Forecasts of Federal Reserve Policy

From the New York Times:

Will the Fed Stick to Its Plan on Low Rates?: ...Fed officials have made it clear that they see no need to raise the federal funds rate... currently 1 percent.... The real question is whether the central bank will retreat from its open-ended commitment to keep rates low "for a considerable period." Retreating from that commitment would be a first step toward tightening monetary policy, putting markets on alert that rate increases are possible several months down the road.

Fed officials have a number of reasons for wanting to wait before taking even that first step. Though the economy grew 8.2 percent in the third quarter and seems poised to grow at nearly 4 percent through next year, Fed officials have said they want to see significant improvement in the job market and more evidence that the specter of deflation, or declining prices, has been banished.... The Labor Department reported that the economy added 57,000 jobs in November. That is less than half the pace in August and September and well below the 250,000 jobs a month that economists say are necessary to bring a big reduction in employment... prices for a broad range of consumer goods are actually declining. Because the productivity of workers has been soaring all year, and shot up by 9.2 percent in the third quarter, the cost of labor has actually been declining.

Analysts are divided about whether the Fed will adjust its language. Laurence E. Meyer, a former Fed governor and now analyst at Macroeconomic Advisors, an economic analysis and forecasting company, predicted that the Fed would drop its commitment to keeping policy relaxed "for a considerable period." But Mr. Meyer also predicted that the Fed would not actually raise rates until at least next June and probably not until January 2005...