2  BIS central bankers’ speeches  assets only after the federal funds rate target is increased, any outward shift in the expected date of liftoff for the federal funds rate suggests that the Federal Reserve will be holding a large stock of assets on its balance sheet longer, which should work to further increase accommodation.7 Starting in March 2009, the FOMC’s postmeeting statements noted that “economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period,” and in November of the same year added “low rates of resource utilization, subdued inflation trends, and stable inflation expectations” as justification for this stance.”8 In August 2011, the Committee substituted “at least through mid-2013” for the words “for an extended period.”9 This date was moved further into the future several times, most recently last September, when it was shifted to mid-2015.10 Also in September, the Committee changed the language related to that commitment, dropping the reference to “low rates of resource utilization and a subdued outlook for inflation.” Instead, it emphasized that “a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens,” clarifying the Committee’s intention to continue to provide support well into the recovery.11 Finally, last December, the Committee recast its forward guidance for the federal funds rate by specifying a set of quantitative economic conditions that would warrant holding the federal funds rate at the effective lower bound.
Specifically, the Committee anticipates that exceptionally low levels for the federal funds rate will be appropriate “at least as long as the unemployment rate remains above 6–1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored.”12 An important objective of these changes in forward guidance is to enhance the public’s understanding of the Committee’s policy strategy and its “reaction function” – namely, how the FOMC anticipates varying its federal funds rate target in response to evolving economic developments.