Members of the Federal Open Market Committee signaled a shift away from using quantitative thresholds like unemployment rates in deciding whether to change the federal funds rate, according to documents released Wednesday at the conclusion of the two-day March meeting of the committee.
“They underscored an intention to more rapidly normalize,” Robert Tipp, managing director and chief investment strategist at Prudential Fixed Income, said in an interview about the meeting.
Thirteen of the 16 members saw 2015 as the appropriate time to start increasing the federal funds target rate, which now stands at zero to 0.25%.
Beyond 2016, there was broad consensus of the rate going closer to 4%. “What we saw today was, if anything, a quicker return to a less accommodative policy,” Mr. Tipp said. “That suggests a more hawkish Fed lineup, in part due to a change in chairs, and in part due to rotating members.”
In their first meeting with Chairwoman Janet Yellen at the helm, FOMC members also decided to continue tapering their bond-buying program, dropping to $55 billion in monthly purchases from $65 billion in February and $85 million per month throughout 2013. But FOMC members cautioned that while further tapering is likely, “asset purchases are not on a preset course.”
Tapering “is certainly a step in the right direction,” Chris Mier, chief strategist at Loop Capital Markets, said in an interview. “The Fed needs to get out of the daily mindset of the (investment) manager. They've kept themselves immersed in the economy and financial markets as if we are still in (the financial crisis). I think we've seen the limits of Fed guidance,” Mr. Mier said.