The FOMC was vague about the timing of hikes in the overnight federal funds rate. It continued to say it anticipates the funds rate will be kept near zero “for a considerable time after the asset program ends.” And it repeated its expectations that the rate will be kept “below normal” “for some time” thereafter. In a separate statement outlining its revised “exit principles,” the FOMC used more “state contingent” guidance, saying it will raise the funds rate “when economic conditions and the economic outlook warrant a less accommodative monetary policy.” More revealing perhaps are the economic forecasts and “appropriate” funds rate assessments of the 17 FOMC participants, this time including Governor Lael Brainard, who had been confirmed by the Senate too late to contribute to the last Summary of Economic Projections on June 18.
All but three think the Fed should start raising the FUNDS rate next year, with one preferring 2014 and two projecting 2016. As for the “dots,” the participants’ median assessment of the “appropriate” FUNDS rate level for the end of 2015 was increased from 1.13% to 1.375%. For 2016, the median rate went from 2.50% to 2.875%. For the first time, projections for 2017 were made. The median funds rate for the end of 2017 is 3.75%. That is the same as the 3.75% median estimate of the “longer run” or equilibrium funds rate, which was lowered from 4% at the June meeting. At the March meeting, the FOMC began saying it “currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.” The FOMC now sees the funds rate arriving at the long-run “normal” or equilibrium level, consistent projections that unemployment and inflation will have reached “mandate consistent levels” at least a year earlier.
