Wednesday, January 4, 2012

The Fed Predicts Its Own Moves

The Federal Reserve, as part of its bid for greater transparency, has announced that after its next Open Market Committee meeting, to be held later this month, the governors will released their predictions for when the Federal Funds rate will be raised. The benchmark Fed lending rate, you'll probably recall, has been at near-zero levels since December 2008. But the Fed is promising to reveal not just their forecast for when that rate will finally be increased, but where Fed governors see it going over the next several years, on a quarterly basis.

Will that matter? The Wall Street Journal contends that if businesses know when interest rates are likely to rise, it provides greater incentives for them to make investments now, before money becomes more expensive. And the Fed could be giving the bond market a blueprint by which it could set future yield curves.

In the near term, though, the whole issue might not make much difference. The Fed has already signaled that it won't raise the Fed Funds rate until at least mid-2013. And the Journal points out that there's a Fed Funds market that doesn't see any increase in the rate until at least 2014.

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