"Our initial assessment is that they considerably increase the probability that the FOMC will reduce its 6.5 percent unemployment threshold for the first hike in the federal funds rate"
- Jan Hatzius, chief economist of Goldman Sachs Group Inc.
Before the September policy meeting analysts were betting Bernanke would announce the tapering of its stimulus programme, expecting a $15 reduction in monthly purchases. Taking into account recent 16-day long government shutdown and political disputes, the October's meeting provided no surprises.
Despite some improvement seen in the labour market, the world's largest economy recorded subpar growth and very weak inflationary pressure in the first half of the year, and all these factors led the Fed to keep its easy-money policy in place. It is expected that in the third quarter the economy slowed to 2.0%. The pace is still very significant, compared with Europe, and it may ease analysts' fears. Nevertheless, this is still a sluggish pace by historic standards. Tepid global growth, budget cuts known as sequester, government shutdown are all weighing on the economy.
Nonetheless, Fed's two officials are expecting to see more improvement in the key labour market and economic growth, considering current stimulus measures as appropriate. According to William English, the idea to keep interest rates at current level and put unemployment of 6.5% as a threshold, has provided effective stimulus, while even lower threshold could be more helpful.
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