Why the Recent Past Seldom Predicts the Future

The Federal Open Market Committee (FOMC) retained its outlook for moderate growth and subdued inflation and, thereby, a path of the federal funds rate consistent with those expectations—this is not a forecast. The interest rate path in the future is conditional upon the outcomes for growth and inflation. The Committee extended its timeline for “exceptionally low levels for the federal funds rate at least through late 2014.” The FOMC is going with easier policy for a longer period. However, there are risks for decision makers here. The FOMC has opened the door to QE3—see our Weekly Economic Commentary on January 13, 2012.

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