I usually don’t like to comment specifically on Fed policy.  It’s not really my area of expertise; I’m not an economist.  However, yesterday’s statement was interesting, not because they kept rates the same (no surprise there), but because they announced a time frame:

…The Committee currently anticipates that economic conditions…are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.

There you have it:  a two-year forecast.  You know my thoughts on the usefulness of a two year forecast (here and here), I don’t buy them.  I have no more confidence in the Fed’s ability (or anyone’s for that matter) to accurately predict the economy two years out than I do if we just threw a dart.

There are quite literally thousands of opinions from experts out there.  My favorite is this:

–I could mince words, but I won’t. Of all the things that the Fed has done over the last few years or might be considering in the near future, this is the most foolish. Policymakers undoubtedly view this commitment as conditional, and the plain language of the statement is conditional – “The Committee currently anticipates that economic conditions…are likely to warrant…” However, market participants clearly perceive this commitment as unconditional. If growth continues to be anemic and inflation is benign over the next two years, no obvious harm will be done. However, if facts on the ground change, the Fed’s credibility will be ruined. Let’s imagine hypothetically that inflation is 5% a year from now. The FOMC has two choices. It can uphold its commitment to keep rates steady, in which case, it will lose its inflation‐fighting credibility entirely (though, of course, if inflation is 5%, then their credibility will already be tattered). Or, it can break what the market views as a promise, which will also destroy its credibility. Damned if they do, and damned if they don’t. In short, this is pure and simple a ridiculous strategy.–Stephen Stanley, Pierpoint Securities

Economists React: Fed ‘Bunts’ with time frame for Low Rates | WSJ Online, August 9, 2011