The Fed's Switch

So what exactly does the Federal Reserve's "surprise" move of yesterday amount to? In the past, the Fed has pegged its moves to specific dates. For instance, the last we heard, it planned to keep interest rates at near-zero levels until at least 2015. That has been the way the Fed has scheduled its policies for pretty much its entire history.

But now its policies will change based on well-defined macroeconomic targets. The Fed plans to keep its loose monetary policies in place until unemployment looks like it has dropped below 6.5 percent or inflation appears to be exceeding 2.5 percent. That last is a switch for the Fed, which had earlier set 2 percent inflation as a target.

Will it have any practical effect on the economy? It's too early to say, but it certainly make sense for the Fed to tie its policies to the actual economic conditions of the country, as opposed to an arbitrary date on the calendar.