How the Fed's guidance on rates has evolved

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WASHINGTON (AP) — "Extended period." 6.5 percent unemployment. "Considerable time."

Every six weeks or so, after the Federal Reserve holds a policy meeting, it issues a statement containing guidance to the financial world on when it might raise interest rates.

It's a moment of great expectation for investors and economists.

The language the Fed has used has steadily evolved since it cut its benchmark short-term rate to a record low in 2008. On Wednesday, after the Fed's latest meeting ends, it may or may not retain its most recent guidance: That it expects to keep its short-term rate near zero for a "considerable time" after it stops buying Treasurys and mortgage bonds. Those purchases are set to end in November.

Here's a look at how the Fed's guidance has evolved since late 2008:


The Fed reduces its target for short-term rates to a record low of zero to 0.25 percent, where it's remained for nearly six years.

MARCH 2009:

With short-term rates as low as they can go, the Fed begins what it calls "forward guidance" to convince markets that rates will remain low for a long time. The hope is that bond investors will then keep long-term borrowing rates low to help nurture the economy. After this meeting, the Fed says it thinks "economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period."

AUGUST 2011:

After using the "extended period" language for more than two years, the Fed changes its guidance to use a date for the first time. It says it thinks "economic conditions — including low rates of resource utilization and a subdued outlook for inflation over the medium run — are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013." At subsequent meetings, that target date is extended "through mid-2015."


The Fed scraps the target date. Instead, it pegs any change in rates to further declines in the unemployment rate. Its statement says it thinks exceptionally low rates "will be appropriate for at least as long as the unemployment rate remains above 6.5 percent." At the time, the unemployment was 7.9 percent.


After steady declines in unemployment, which Chair Janet Yellen and some other officials thought overstated the job market's health, the Fed says it expects to keep its short-term rate low "well past the time that the unemployment rate declines below 6.5 percent." Unemployment was then 6.7 percent.

MARCH 2014:

The Fed drops any link to a specific level of unemployment. It explains: "With the unemployment rate near 6.5 percent, the committee has updated its forward guidance." It says it thinks the ultra-low short-term rate will be needed "for a considerable time" after its monthly bond purchases end. Those purchases are expected to end in November. The Fed retains this language at its April, June and August meetings.

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