The unemployment rate had dropped to 6 percent by midyear— well below its Great Recession peak of 10 percent—and other measures of labor market conditions were also showing significant improvement. In addition, inflation, as measured by the change in the price index for personal consumption expenditures, had reached about 1-3/4 percent by mid-2014 after hovering around 1 percent in the fall of 2013.
Reflecting that progress, the Federal Reserve’s focus was shifting from providing additional monetary policy accommodation to scaling it back.7 A key question for the FOMC then was how to reduce the degree of accommodation in the context of a vastly expanded Federal Reserve balance sheet.