The Fed is beginning to think about how to signal a pause in its long campaign of measured increases in the federal funds rate. I don't read this as saying a pause in the immediate future is imminent (see the comments from Jeffrey Lacker at macroblog and the comments here from Michael Moskow), but rather as a means of getting ready to communicate a pause when the time does come. In this era of increasing transparency, a communications strategy must develop that allows the Fed to signal its intentions as clearly as possible. This is an institution that will, of course, evolve over time and this committee must develop the foundations that allow an effective communications strategy to emerge:
Minutes of the Federal Open Market Committee, November 1, 2005: ...In the Committee's discussion of monetary policy for the intermeeting period, all members favored raising the target federal funds rate 25 basis points to 4 percent at this meeting. The economy seemed to be growing at a fairly strong pace, despite the temporary disruptions associated with the hurricanes, and underlying economic slack was likely quite limited. In that context, all members believed it important to continue removing monetary policy accommodation in order to check upside risks to inflation and keep inflation expectations contained, but noted that policy setting would need to be increasingly sensitive to incoming economic data. Some members cautioned that risks of going too far with the tightening process could also eventually emerge. Nonetheless, all members agreed to indicate at the conclusion of this meeting that a continued measured pace of policy firming remained likely.
In their ongoing discussion of the Committee's communication strategy, participants expressed a variety of perspectives about how the policy statement issued at the end of FOMC meetings might evolve over time. Several aspects of the statement language would have to be changed before long, particularly those related to the characterization of and outlook for policy. Possible future changes in the sentence on the balance of risks to the Committee's objectives were also discussed. Participants noted that any forward-looking elements of the statement should clearly be conditioned on the outlook for inflation and economic growth. For this meeting, members concurred that the current statement structure could be retained, as it accurately conveyed their near-term economic and policy outlook.
I am not reading as much into this as some. We knew rates would stop increasing at some point and this, to me, is just the Fed doing its best to be ready when the day comes.
As noted above,
David Altig at macroblog also comments.