FOMC Minutes Show Taper Is On Course, Fed Funds Rate Linked to Unemployment

by on February 19, 2014 7:53 pm BST

The FOMC minutes showed that the Federal Reserve will change their guidance on interest rates as unemployment improves. Originally, former Chairmen Ben Bernanke assured the markets that borrowing costs would not increase prior to 2015, but January’s minutes give an indication that the central bank wants to move towards normal monetary policy.

Several FOMC members discussed that a pause in the taper as the last two months of economic data has been far below expectations. However, the Fed will continue on the path to taper until their forward outlook changes dramatically. The minutes report indicated “the absence of an appreciable change in the economic outlook, there should be a clear presumption in favor of continuing to reduce the pace.”

In regards to unemployment, ” it would soon be appropriate for the Committee to change its forward guidance in order to provide information about its decisions regarding the federal funds rate after that threshold was crossed,” which currently stands at 6.5 percent. Members of the FOMC were concerned with the recent employment data, but that no change to the set measured taper would be justified at this point.

Equities rallied initially but have given up slack. The US dollar has remained positive, and major peers have falling. The Canadian dollar remains significantly lower on poor economic data, but the eurodollar has fallen in negative territory.