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• In a historic US monetary policy shift at its January meeting, the Fed has made a major step towards greater transparency, trying to shape market interest-rate expectations.
• The Fed’s conditional commitment to keep fed funds rates at exceptionally low levels was extended from “at least through mid-2013” to “at least through late 2014”.• The FOMC participants’ rate projections gave a less dovish picture than the FOMC statement, with the median participant expecting a fed funds rate of about 0.75% at the end of 2014.
• According to our estimates, the Fed would begin tightening its policy at the end of 2013 or at the beginning of 2014 under its forecasts, if it responded to the economic conditions in the same way that it did in the past.