–FOMC ‘Judges’ that PCE Inflation Rate of 2% ‘Most Consistent’ W/Mandate

WASHINGTON (MNI) – In its first statement of long-term goals, the
Federal Open Market Committee Wednesday said basically it tries to do
its best to minimize inflation and to maximize employment, even when
those two objectives are “not complementary.”

Its inflation target? “The Committee judges that inflation at the
rate of 2%, as measured by the annual changes in the price index for
personal consumption expenditures, is most consistent over the longer
run with the Federal Reserve’s statutory mandate,” the document said.

The statement of “The FOMC’s Longer-Run Goals and Policy Strategy”
was piled on to the Committee’s debut of its federal funds projections
and the updated quarterly economic assumptions all released 15 minutes
before the start of Chairman Ben Bernanke’s news conference.

The FOMC’s latest statement at the end of this week’s two-day
meeting, published at 12:27 ET, had already declared the big news of the
day, that the timeline for an “exceptionally low” federal funds rate is
now extended “at least through late 2014″ from what had been “mid-2013.”

What was immediately obvious was that for Bernanke, whose term as
chairman ends Jan. 14, 2014, the new tack on the rates timeline and the
new inflation target would be more than an interim step for him, and in
fact possibly the endgame of the Bernanke era.

Although Bernanke’s term as a Board member could extend until
early 2020, that is seldom the path taken by former chairmen.

The statement of longer-run goals pointed out the differences in
fighting accelerating inflation and in battling high unemployment.

“The inflation rate over the longer run is primarily determined by
monetary policy,” the statement said, so the FOMC “has the ability to
specify a longer-run goal.”

But the maximum level of employment, in contrast, “is largely
determined by nonmonetary factors that affect the structure and dynamics
of the labor market,” the statement went on.

So, the FOMC said it is not specifying a fixed goal for employment
that instead looks at different “uncertain and subject to revision”
assessments.

The entire day’s basket of Fed declarations were all qualified by
the word “likely” in the FOMC statement, as in low rates of resource
utilization and a “subdued” outlook for inflation over the medium run
“are likely to warrant exceptionally low levels for the federal funds
rate at least through late 2014.”

“Likely” leaves open the possibility of everything from tiny rate
hikes in reaction to growth spurts to larger adjustments to ongoing
events, even additional accommodation in reaction to any European
disaster.

Without those circumstances, however, the Fed Wednesday said that
at least the rest of current Bernanke term as chairman will be pretty
much as it is now.

** Market News International Washington Bureau: 202-371-2121 **

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