Fed Ties Rates to Jobless; Allbritton Dies

Receiving Wide Coverage ...

Rates Tied to Unemployment: Holy mackerel. The Delphic confusion of Fedspeak past vanished from headlines on the central bank's policy statement Wednesday. Both the Journal and the Times went with "Fed Ties Rates to Joblessness," and FT wasn't far off (different font, different space to fill, presumably).

For the first time, the Fed identified a threshold for the unemployment rate — 6.5% — that would have to be achieved before it starts tightening short-term rates. It also said it would allow inflation to run a bit ahead of its general target of 2% as long as long-run expectations remain stable, and that it would keep buying about $85 billion of bonds a month. (Sales of short-term Treasuries that were being converted into positions in long-term Treasuries, also known as Operation Twist, will end.) Fed Chairman Ben Bernanke's comment in a press conference that high unemployment represents "an enormous waste of human and economic potential" figured into the accounts in both the Times and the Journal.

Another article in the Journal recounted the influence of Chicago Fed President Charles Evans in forging the new policy. "Heard on the Street" worried that the Fed might have to tighten "in an awfully big hurry" if it gets caught by inflation.

In a note to clients, Michael Gapen, an economist at Barclays, wrote that the Fed "has gone to great lengths in a short time to alter its policy framework completely." But Gapen reckoned that the thresholds don't represent easing beyond the previous guidance of keeping rates near zero until mid-2015. The Fed's forecasts show unemployment hitting roughly the 6.5% level in 2015. (The Fed itself said it views the "thresholds as consistent with its earlier date-based guidance.") Michael Woodford, an economist at Columbia and another among "the intellectual godfathers" of the new policy, said that "at least some market participants" would change their forecasts. The thresholds suggest a different course for policy than would be indicated by the central bank's pre-crisis decisions. Wall Street Journal, New York Times, Financial Times

Eurocop: Now that's more like it. The Journal says, "EU Reaches Deal on Bank Supervisor," while the Times says "European Leaders Try to Show Unity on Bank Supervision." This could take a bit longer. New York Times, Wall Street Journal, Financial Times

Allbritton Dies: Joe L. Allbritton, the former chairman and chief executive of Riggs National died at 87. The "self-made" millionaire and Washington "television and newspaper baron" infamously cultivated a relationship with former Chilean dictator Augusto Pinochet. Riggs paid tens of millions of dollars in civil and criminal fines over money-laundering violations in the mid-2000s, and was sold to PNC. American Banker, Wall Street Journal, New York Times, Washington Post

Wall Street Journal