There was some anticipation that the likes of Richard Fisher and Charles Plosser would push against the “for a considerable time” part of the statement. But no and surprise, this time we had a dove dissent, with (“born again”) Narayana Kocherlakota believing the “5th paragraph” weakens the credibility of the Committee’s commitment to return inflation to the 2 percent target from below and fosters policy uncertainty that hinders economic activity:
To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy remains appropriate. In determining how long to maintain the current 0 to 1/4 percent target range for the federal funds rate, the Committee will assess progress–both realized and expected–toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. The Committee continues to anticipate, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored.
And he´s right! Inflation has been moving in the wrong direction and so has NGDP growth as the table below indicates. (Inflation is PCE-Core and NGDP is the monthly estimate from Macro Advisers)
It seems that the FOMC has to work harder!
Note: During Yellens Press Conference there was a “scare moment” brought about by the words “next fall” (to end the asset purchase) and “six months” (april 15) (to begin the rate rise sweepstake). The Dow dropped 150 points.
Update (March 21): Kocherlakota explains his dissent