Federal Reserve

Fed minutes: Committee agreed 6.5% threshold was 'outdated,' vote to remove was unanimous

Dissecting Fed minutes

The members of the Federal Open Market Committee agreed unanimously in March that a 6.5 percent unemployment target for raising interest rates was "outdated" and should be removed, according to meeting minutes.

Overall, the minutes portray a committee set on keeping interest rates low for the foreseeable future, despite some market rumblings after the meeting. Equity markets rallied on the news, helping halve an aggressive selloff last week and early this week, while bond yields fell.

"There was little if any surprise in the FOMC minutes and we continue to expect a slow, deliberate Fed exit, helping support capital markets," Ethan Harris, co-head of global economics research at Bank of America Merrill Lynch, said in a note.

In the lone surprise development from the minutes, the Fed held a previously undisclosed emergency video conference March 4 to discuss getting rid of the jobless rate target.

The March Fed gathering was significant not for what the central bank did regarding its monthly money-printing program, but rather for how it will determine when interest rates will increase.

Previously, the Fed had indicated that a drop in the unemployment rate could trigger the beginning of rate increases, provided it accompanied a 2.5 percent inflation rate. But with the jobless number nearing the target and inflation well short, the Fed decided to change gears.

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In the future, the committee will watch "qualitative" measures that look at various metrics within the economy to decide when an increase is warranted.

"With respect to forward guidance about the federal funds rate, all members judged that, as the unemployment rate was likely to fall below 6..5 percent before long, it was appropriate to replace the existing quantitative thresholds at this meeting," the minutes stated.

In remarks to the press after the meeting, Chair Janet Yellen created a bit of a stir when she indicated that rate increases could happen earlier than the market expected—perhaps by late spring. The jolt quickly wore off, though, as markets focused elsewhere.

Though inflation hawks and market bears parsed Yellen's remarks after the March meeting to mean that the Fed might take a more accommodative stance. the minutes indicate a strongly dovish stance.

"The Committee decided that it was appropriate to add language indicating that the Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run," the minutes said.