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7 days of Economics: They did it again!

  • Alexandra Estiot Economist
  • 17.03.2017
  • Another dovish rate increase from the Fed
  • And a fully assumed symmetric inflation target

The Fed did it again: raising rates while using a dovish tone. As fully expected, the Fed raised its key rate by a quarter of a point. From the beginning, it was obvious the Fed would use any opportunity to advance the normalisation of monetary policy, in order to move away from the discomfort zone that is zero. 

As the labour market strength remains unquestioned and inflation is slowly but surely moving back to target, the March meeting could not be missed. Still, this second rate increase comes only three months after the previous one, and FOMC members were willing to make it clear that they were not rushing, that this was not the sign of a steeper hiking cycle in the making. Jane Yellen once more said that with the currently very low level of neutral rates, there was no need for a lot of rate increases to turn the monetary stance towards neutrality. She also said that this rate increase had nothing to do with a reassessment of the economy, and unchanged projections from her and her colleagues confirm this.

But more strikingly, the minor changes within the statement came with a crucial one. There is now an adjective attached to the inflation target. It is said to be “symmetric”. In a way, there is no news here, as the symmetry has been claimed and assumed for long. Still, mentioning it within the statement makes it way more credible. In short, the Fed raised rates, signalled it would continue to do so as expected, and confirmed that the limit was substantially lower than usual. A new formula for lower for longer. 

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