Michael Woodford on the new Fed policy:
The explicit thresholds mentioned today are not ones that will be reached as soon as a federal funds rate above 25 basis points would be dictated by a reaction function estimated on the basis of the FOMC’s pre-crisis decisions, and in that respect the announcement should change the forecasts of future Fed policy of at least some market participants.
A more explicit discussion should also reduce some of the considerable uncertainty about Fed policy that has resulted from the series of unprecedented actions taken over the past few years. While the quantitative thresholds announced are not the ones that I have advocated, they represent a substantial improvement upon the date-based approach to forward guidance that continued to be used in the September and October FOMC statements.
