Good News—Fed Stands Pat

First the good news. In its policy statement today, the FOMC resisted pressure to “taper” bond purchases.

The bad news is that for all the Fed’s talk about policy being accommodative, the FOMC also “anticipates that inflation over the medium term likely will run at or below its 2 percent objective.” This raises the same old question of why the Fed doesn’t target the forecast. If the objective is 2 percent inflation, then the Fed should set policy such that the Fed expects inflation to be around 2 percent and equally likely to deviate in either direction. If the objective is actually 1.7 percent inflation, then the Fed should at least say so rather than confusing us.

An interesting note here is that James Bullard, who’s often been a hawk, offered a dovish dissenting vote. I wonder if Kocherlakota got to him. At any rate, we don’t know the details of Bullard’s reasoning but the short take is that he “believed that the Committee should signal more strongly its willingness to defend its inflation goal in light of recent low inflation readings,” which is completely correct.

All in all, a decent result that should be consistent with an economy that keeps growing and adding jobs.