WHAT HAPPENED: Fed stayed the course. Nothing happened to change expectations of first interest rate hikes happening early next year, and Fed officials announced another $10 billion taper. They also lowered 2014 GDP growth expectations from their March projection of 2.8 – 3 percent range to a 2.1 to 2.3 percent range. FOMC statement:  Fed projection: 

UNEMPLOYMENT FOMC adjusted its 2014 unemployment projection to 6 – 6.1 percent, a tick down from their March projection of 6.1 percent to 6.3 percent. Next year, they expect unemployment to be at 5.4 to 5.7 percent, and in 2016 between 5.1 percent and 5.5 percent.

KEY QUOTE: “A portion of the decline we’ve seen in the unemployment rate probably reflects a kind of shadow unemployment or discouragement,” Yellen said during her presser. “Committee participants generally see the unemployment rate declining to its longer-run normal level by the end of 2016.”

QUICK Q:Is 5.5 percent unemployment a new “normal level” for America’s economy?

QUICK A: Former President Clinton economic adviser ROBERT SHAPIRO, told OVERNIGHT FINANCE: “The new normal may involve lower growth and smaller productivity gains, which would also mean higher unemployment even when times are good.”

NEW NORMAL: 5 PERCENT UNEMPLOYMENT. “The Fed doesn’t believe the unemployment rate can fall below 5 percent in this cycle which, unforgettably, began with a financial collapse,” Shapiro said. “The cycles that follow those kinds of events usually involve slower growth, and thus higher unemployment.”

BLAME BOOMERS? Shapiro said: “The retirement of millions of baby boomers now and in coming years reduces the overall growth of the workforce, and since growth depends on increases in the workforce and increases in productivity, the boomers’ retirements may also slow growth.”

RT NYT economics reporter @Neil_Irwin: “The Wait ‘Til Next Year economy MT @BCAppelbaum: The US economy has basically become the Chicago Cubs.”  (It has been 105 years since the US baseball team, the Chicago Cubs, won the World Series).

Before the world’s twenty lead economies meet and financial regulation is on their agenda.  Douglas J. Eliot writes: We are part of many global reform initiatives, such as those undertaken by the Basel Committee on Banking Supervision and the Financial Stability Board. These have established important common rules on bank capital and liquidity requirements, as well as the new rules governing derivatives markets and certain other reforms. The U.S. has substantial influence on the shape of these rules and their application and we should help ensure that they are appropriately calibrated to optimize the balance of safety and economic efficiency.

In some areas, it appears that the global rules may be too harsh and may limit the availability of credit provision through banks or their affiliates, either making such credit harder to get or more expensive, or pushing the business into the so-called “shadow banking” sector, where it may be more dangerous to the financial system. (Some of this should move to markets or non-bank credit channels. The concern is about regulatory arbitrage where some business moves to where it is less safely and effectively controlled.) Concerns have been raised, for example, about infrastructure financing, loans to small and medium sized enterprises, and government debt of emerging market economies, which are important drivers of global growth.

The Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution is launching “Janet Yellen’s Dashboard,” an on-line version of the Fed chair’s gauges that will be updated frequently.  W-T-W.org will call your attention to it each time Yellen speaks.

In one interactive graphic on the Brookings’ website, the dashboard shows a dozen of the most important measures of the economy’s speed and direction. For inflation, for instance, it charts the recent trend in the Fed’s favorite inflation measure, the Personal Consumption Expenditure price index, as well as the trend in average hourly wages and the bond market’s expectations for future inflation.

We are offering a quick way for people to put themselves in Janet Yellen’s cockpit and see how the economy is doing—and to judge for themselves how well the Yellen Fed is doing in meeting the objectives that Congress has set for it. For now, inflation remains below the Fed’s 2% target and unemployment remains above the level that Fed officials deem full employment.

Knowledge Center Catalyst Report
Highly qualified women working in Europe are lagging behind their male counterparts in pay and seniority.
High Potential Women in Europe / PDF

Conventional economics suggests that you can only maintain two out of the three key factors:  monetary policy independence, a fixed exchange rate and free cross-border currency flows.  China is succeeding in doing all three at once.  Yu YongDing shows how:

China has run a capital-account surplus for most of the last 30 years, and a trade surplus every year since 1993. The PBOC keeps the exchange rate stable by intervening heavily in the foreign-exchange market, creating so much liquidity that the authorities must engage in massive sterilization to avoid overshooting the targeted increase in the monetary base.

In China, unlike in advanced countries, monetary and sterilization policy are often one in the same. The degree to which monetary policy is expansionary depends on the degree to which the liquidity created by currency-market intervention has been sterilized.

The most frequently used monetary instrument in sterilization is open-market operations. Given China’s twin surpluses, the PBOC sold all of the government bonds that it had accumulated in 2003, so it has been selling central-bank bills ever since, with CN¥5 trillion ($812 billion) in such bills currently held by banks.