Against such a backdrop, the Federal Reserve has recently decided to keep the target range for the federal funds rate at 0 to 1/4 percent and changed the outlook for the duration in which exceptionally low levels for the federal funds rate are likely to be warranted, from “at least through late 2014” to “at least through mid-2015.” In addition, it has decided to purchase mortgage-backed securities (MBS) issued by governmental financial institutions, called agency MBS, at a pace of 40 billion dollars per month until the outlook for the labor market improves substantially in a context of price stability.
In any event, further increases in labor utilization rates would heighten the risk of additional upward pressure on wage costs, and ultimately prices. To be sure, the pickup in wage gains to date has not shown through to underlying price inflation.