US Fed: Faster convergence toward the Fed’s mandate could prompt earlier tightening
Global Markets Special Focus Reports
28 August 2014
• According to the July FOMC minutes, cumulative progress in labor market conditions over the past year has been faster than previously expected, with the labor market now closer to what might be viewed as normal in the longer run. • The hotly debated issue is the degree of slack that remains in the US labor market, with some FOMC members emphasizing on broader labor market indicators that suggest a significant underutilization of labor resources.• Given the positive assessment of the US labor market, the committee revised down its unemployment rate forecasts and reduced its estimate of the US output gap, sending a slightly hawkish signal. • Fed is expected to keep fed funds rate as a primary instrument of monetary policy, with the interest rate paid on excess reserves setting the upper band of the target range and the fixed-rate reverse repo setting the bottom of the target range.