Fed changes tactics in future guidance The first meeting of the Federal Open Market Committee (FOMC) under the leadership of Janet Yellen brought a long-awaited change of format in communications policy, as well as a large discounted reduction of $10 billion in monthly asset purchases. There was also the abolition of the so-called Evans rule, which allowed some overshooting of the Fed's long-term inflation target of 2%. Although the new Fed chair did his best to describe the policy outlook as accommodative, the financial markets were not entirely convinced. Changing forward guidance was always going to be the biggest challenge in 2014, especially given the faster-than-expected decline in unemployment. Political thresholds have been abolished. The emphasis of the forward guidance has now shifted to the period in which rates will remain low. New economic projections have been released by the FOMC. The most important forecast revision was the expected decline in unemployment to 6.1%-6.3% by the fourth quarter of 2014, bringing it below the old threshold. The policy thresholds, however, were not an automatic trigger for rising interest rates. The overwhelming opinion of FOMC members (including non-voters) predicts a consolidation of monetary policy to 1% by the end of 2015 and to 2%-3% by December 2016. The normal federal funds rate is considered to be equal to 4%. Financial markets have treated these policy rate forecasts aggressively. While short-term interest rates are expected to remain low (i.e. below 4%), they will move further and further away from zero. This is what scared the financial markets. Communication failed, but inflation becomes more important While the majority of the FOMC considers a tightening of monetary policy appropriate by the end of 2015, there is still no official position on the timing of the first increase... half of the document... on the world post-Great Recession. This is, however, potentially undermined by low belief in one's economic forecasts. The Fed is also trying to maintain as much policy flexibility as possible by maintaining ambiguous guidance. The president of the Minneapolis Fed was the only dissenter at the last FOMC arguing that the Fed's 2% inflation target had been weakened. Furthermore, he argues that ambiguity about guidelines would result in greater risk aversion. Interest rates will remain low for a considerable period to come, raising the specter of financial bubbles. Financial stability has become a consideration for monetary policy. The Fed is monitoring conditions in the high-yield corporate bond and leveraged loan markets. It is also looking for ways to reduce systemic financial instability by slowing growth during economic recoveries to prevent excessive risk-taking..