I’ll be paying particularly close attention to whether the minutes reveal any discussion of changing the wording of the Fed’s de facto time commitment on rates. At present the statement reads “economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.”
Bernanke used a different formulation in his speech last week – saying “accommodative policies will likely be warranted for an extended period” – a phrase seen by many as more hawkish. I’m not sure how much weight to put on this apparent shift. Bernanke used the same “accommodative policies” phrase when discussing the same subject – the Fed balance sheet – in a July 21 WSJ op-ed. When you talk about the balance sheet it makes sense to talk about policies rather than rates.
Still, I do know that a number of Fed officials are thinking about how they might in future modify the language in the statement. I would expect the US central bank to tweak the guidance – perhaps more than once over a number of meetings – rather than remove it in one stroke. In effect it would be gradually phased out, rather like the purchase programmes, in order to try to avoid a sharp market reaction.
Some, needless to say, are much more anxious to get started with this process than others.