Overview: The most interesting part of Bernanke's speech and the FOMC minutes for the January 27-28 meeting was the information that the committee will release longer-run forecasts for PCE inflation, GDP growth and unemployment in addition to its projections for the next three years. Longer-run estimates for PCE inflation can be regarded as the Fed's implicit inflation target with the minutes stating that "most participants judged that 2% would be consistent with the dual mandate". Addressing the possibility of the Fed buying up longer-dated treasury securities, Bernanke did not mention this as an option in his speech. Nor do FOMC minutes suggest such purchases are imminent.
Details: Committee members extended their forecast horizon to include a long-term (5- to 6-year) period probably because they recognized that longer-range objectives would not be reached over the next three years, even assuming "appropriate monetary policy". Most members thought the appropriate longer-term inflation rate to be between 1.7% and 2% while "most participants judged that 2% would be consistent with the dual mandate". The central tendency of the longer-run projection on GDP growth was relatively downbeat at 2.5-2.7% compared with a 4.8-5.0% range in the case of unemployment.
