U.S. Federal Reserve Targets 2% Inflation

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U.S. Federal Reserve Targets 2% InflationPreviously the central bank did not set itself a formal target, but pointed to a range of 1.7% to 2% as an informal target. But today the Feds have formalized its inflation target at 2% – similar to the Bank of England.

Read more about it below: (Taken From Forbes)

For the first time Wednesday the U.S. Federal Reserve announced that it will specify a 2% long-run inflation target, the level that was long-considered the central bank’s implicit goal.

The news came after the central bank wrapped up a two-day monetary policy meeting Wednesday with the decision to keep interest rates at exceptionally low levels until at least late 2014, compared with mid-2013 as of December.

Wednesday’s releases also included FOMC members’ views on the appropriate time to start increasing rates is, with only six of the committee’s 17 members selecting 2012 or 2013. Five FOMC members said 2014 is the right year to start firming policy, while the remainder were split between 2015 and 2016.

Once the central bank starts hiking rates, committee members do not expect a rapid increase. None think the target federal funds rate will climb above 3% before the end of 2014 and the consensus for longer-term rates is in the 4.25% range.

The stock market shot out of the red after the Fed extended its commitment to extremely low interest rates Wednesday, with the S&P 500 turning an earlier loss into a 0.5% gain. Gold prices raced higher, climbing more than $35 to top $1,700 an ounce, while the yield on 10-year Treasuries dropped back below 2% to 1.95%.

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