Fed Shifts to a Less-Predictable (?) Approach to Policy Making

Nick Timiraos from the Wall Street Journal has an interesting article entitled  “Fed Shifts to a Less-Predictable Approach to Policy Making.”

Federal Reserve officials are moving into a more unpredictable phase of policy-making after two years of removing economic stimulus in regular, quarterly intervals.

They will be deciding whether and when to raise interest rates more on the basis of the latest signs of economic vigor—such as in inflation, unemployment and growth—and less on forecasts of how the economy is expected to perform in the months and years to come, they’ve indicated in interviews and public comments.

Less predictable???? One possible rule is the Taylor Rule. But The Fed kept their target rate at 25 basis points from late December 2007 to December 2015, far below the TR rate.

trrudesbuch

Here is the Fed Funds Target rate.

fftrub.png

Its not that The Fed will be less predictable, Its just that they aren’t following any model that is visible to the marketplace. So in a sense, they like to surprise the marketplace!

surprise

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