The Federal Reserve announced Wednesday that it plans to continue its “highly accommodative” monetary policies and will begin the process of reducing stimulus and bond purchases later in the year if unemployment rates continue to decline.
The Fed’s announcement was preceded by much speculation from economic analysts that the central bank would effect — or, at least, would lay the groundwork for — economic policy changes to move the economy away from easy money. An improved economic outlook has elicited more frequent suggestions by members of the Fed that the central bank should reduce the pace of asset purchases in coming months.
But fickle market behavior at the mere suggestion of policy changes is indicative of potential economic disaster that could occur should the Fed misstep.
“In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments,” said a statement from Fed officials. “When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.”
Despite the optimism, the Fed’s projections are not as accurate as many economy watchers would like — a point handily noted by projections Fed officials have made with regard to gross domestic product growth. Whether the Fed’s economists are just really bad at predicting economic outcomes or they intentionally make overly optimistic projections to spur consumer confidence, the central bank has consistently predicted growth that has been almost twice what occurred since 2009.