Fed search for policy thresholds hindered by volatility

Unemployment Forecast

“If they’re able to agree on a 7 percent threshold, by the time they’re able to agree, we may be there anyway,” said Dean Maki, chief U.S. economist at Barclays Plc in New York and formerly an economist at the Fed board. Maki says the unemployment rate could fall more quickly than central bank predicts.

The Fed has kept its benchmark interest rate near zero since December 2008 and has relied on three rounds of large- scale asset purchases to push down borrowing costs and spur growth and employment. Until September, the jobless rate had been stuck above 8 percent for 43 straight months, the longest such stretch in monthly records dating to 1948.

The Fed’s record easing has pushed stocks higher. The Standard & Poor’s 500 Index has more than doubled since reaching a 12-year low on March 9, 2009. Strategists at Bank of America Corp. project it will climb to 1,600 by the end of 2013, surpassing its record high of 1,565.15 reached in October 2007.

Treasury Yields

The gap between two-and five-year Treasury yields, which shrinks when traders expect the benchmark rate to remain low, is now about one-third of what it was three years ago.

Stocks fell as investors awaited the start of earnings season and the International Monetary Fund cut global growth forecasts. The S&P 500 declined 0.5 percent to 1,447.93 at 10:50 a.m. in New York.

The world economy will grow 3.3 percent this year, the slowest since the 2009 recession, and 3.6 percent next year, the IMF said today, compared with July predictions of 3.5 percent in 2012 and 3.9 percent in 2013. The Washington-based lender now sees “alarmingly high” risks of a steeper slowdown.

Among other economic data today, confidence among U.S. small businesses cooled in September as fewer companies said they planned to hire or invest in new equipment, a survey found.

In Australia, business confidence recovered in September as the prospect of interest-rate reductions overshadowed weaker sentiment among miners and manufacturers, a private survey showed. Japan reported a larger-than-estimated 454.7 billion yen ($5.8 billion) current-account surplus.

U.K. Manufacturing

Reports in the U.K. showed manufacturing fell more than economists forecast in August and the trade gap widened, indicating the economy may struggle to regain strength.

In September, before the U.S. jobs figures were announced, the FOMC extended its time horizon for low rates at least through the middle of 2015 from late 2014. It also announced its third round of so-called quantitative easing, with monthly purchases of $40 billion of mortgage-backed securities.

Most officials said that numerical thresholds “could be useful to provide more clarity” even as they “thought that further work would be needed to address the related communications challenges,” minutes of the meeting showed.

Among the challenges: choosing among various measures of labor-market health.

A broader gauge of unemployment was unchanged last month at 14.7 percent. That figure includes those who have given up looking for a job and those who work part-time because they can’t find full-time work.

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