Should We Be Worried?
[A] hawkish interpretation… starts with the end of the Evans rule. Everyone seems focused on the unemployment part of the Evans rule, while my attention is on the inflation part. The Evans rule allowed for the Fed to reach their inflation target from above. It provided wiggle room on the target as long as unemployment was above 6.5%. With the end of the Evans rule, the Fed sends a signal that they no longer find it acceptable to reach the target from above. They intend to reach it from below. 2% is officially once again a ceiling.
Others see it in the moving forward on the calendar of the first federal funds rate hike as seen in the FOMC projections or in the shifting of the FOMC conversation to when the policy rate hike will occur. Here is Ylan Q. Mui:
The nation’s central bank said Wednesday it will look at a broad swath of indicators… as it determines when to raise rates for the first time since the recession hit. The deliberately vague wording is a retreat from the Fed’s concrete promise to leave rates untouched. Though they disagree on when to act… the statement signals the moment has finally come within striking distance.
Gavyn Davies sees these developments as part of a longer tightening cycle that has been going on for some time:
[I]n a wider sense there has been an unmistakable shift in the FOMC’s centre of gravity in the past few months. The key to this shift is that the mainstream doves who have dominated policy decisions in the past few years have now essentially stopped arguing against either the tapering of the balance sheet or the start of rate hikes within about a year from now.
Source: http://macromarketmusings.blogspot.com/2014/03/should-we-be-worried.html
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