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Fed's opt-out language strategy

Wednesday, November 19, 2014 - 01:38

Minutes from the Fed's most recent meeting show a central bank that opted out of making radical changes in it's language, to avoid the risk of creating an unintentional signal of pessimism. Bobbi Rebell reports.

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The Fed chose its words carefully when it last met- in October- choosing for example- not to directly address weakeness overseas- and choosing to keep in language pointing to leaving rates low for a "considerable time." IHS Chief Economist Nariman Behravesh: SOUNDBITE: NARIMAN BEHRAVESH, CHIEF ECONOMIST, IHS (ENGLISH) SAYING: "I think they left it in because there were a number of the participants who were very uncomfortable taking it out, because it might be a signal to the market that there was going to be some tightening coming soon. Although they did insert some language that said they could move up the - could move sooner- the rate hike- if the economy surprised on the upside. So they are giving themselves a lot of room to maneuver. " Behravesh expects a rate hike in June- at the earliest - and for the pace of hikes to be slow. The minutes also showed a fed focused, and concerned about inflation that is below their targets. The central bank also cut estimates for near term U.S. economic growth. The Fed also made it clear they were aware of the risks of market volatility as they returned policy to a more normal state. SOUNDBITE: NARIMAN BEHRAVESH, CHIEF ECONOMIST, IHS (ENGLISH) SAYING: "Well, after that botched sort of effort or attempt last year or last spring in terms of announcing the tapering. That clearly created a lot of volatility they have been a lot more careful in terms of their communicaiton. So, I would say from May to now, I would give them fairly high marks in terms of managing expectations. But they have got a big challenge in front of them in terms of how to prepare the markets for the first rate hike, and I think we will see inevitably we'll see some volatility around that. Hopefully not too much, but we'll see some." The Fed will issue updated economic projections when it meets in mid-December.

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Fed's opt-out language strategy

Wednesday, November 19, 2014 - 01:38