After the Fed's surprise non-taper last month, the cause could have been the Fed's own confusing guideposts which led market expectations astray. Previously, the Fed had said bond buying would end at an unemployment rate of 7%, with interest rates to rise when unemployment fell below 6.5%. However, the Fed has almost walked completely away from these measures as the bank realises that the fall in the rate is caused more by a falling participation rate as opposed to higher employment. It comes as the participation rate fell again in August to 63.2%, the lowest since 1978. This comes as Bernanke said unemployment was not necessarily a great measure, damaging confidence in the bank. St. Louis Fed President James Bullard said I think markets would rightly start to worry that the thresholds are just being moved around for convenience and they can easily be moved up again or ignored. (VIEW LINK)
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