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Now You Know That An "Extended Period" Is 2 Years

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According to the Fed, which changed its tune from "exceptionally low levels for the federal funds rate for an extended period" to "exceptionally low levels for the federal funds rate at least through mid-2013." From the Fed's statement:

The Committee currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013. The Committee also will maintain its existing policy of reinvesting principal payments from its securities holdings. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate.

Three governors preferred to keep it vague.

Markets are unimpressed, as no QE3/2.1/e was announced, interest rates didn't go negative, and the extended period language didn't include the balance sheet. On the other hand, CNBC found it necessary to break out the decabox, which they noted is a collector's item "you can frame" (earlier example framed above).

Treasuries are rallying as apparently some people thought an extended period didn't mean that extended. Goldman, on the other hand, was with the Fed on the 2013 thing and thinks they could even go a bit further, saying in a note this morning:

Our new forecasts reinforce our long-held call for no funds rate hikes until 2013, and suggest that it could be even later. Indeed, our Taylor rule suggests that it could be as long as late 2014 before the first funds rate hike becomes appropriate--around 18 months later than before. This prediction is close to that from a rule estimated by Glenn Rudebusch of the San Francisco Fed (see "The Fed's Exit Strategy for Monetary Policy," FRBSF Economic Letter, 2010-18). Feeding our new forecasts into his rule suggests that the first rate hike might take place in mid-2014.



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