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With Economy Softer, Yellen's Fed Doesn't Tap the Brakes

NEW YORK (TheStreet) -- Janet Yellen replaced one question with another. If people were asking before what the Federal Reserve would do to interest rates once the unemployment rate went below 6.5%, surely they are now scratching their heads over what the central bank's target of "maximum employment" really means.

"In determining how long to maintain the current 0 to 1/4% target range for the federal funds rate, the Committee will assess progress -- both realized and expected -- toward its objectives of maximum employment and 2% inflation,'' the Fed said in the first post-meeting statement of the Federal Open Market Committee since Yellen became its chair in January.  

And with that, the central bank's 6.5% unemployment target officially bit the dust, replaced by a standard that raises at least as many questions. 

In a press conference, Yellen put some meat on the bone, but the picture was more or less what Fed watchers have been piecing together on their own.

She emphasized measures like the high level of involuntary part-time employment among workers who can't find full-time work, the dropping level of labor force participation (though she, like her predecessor Ben Bernanke, said the dip mostly represents a wave of Baby Boomers retiring) and the difference between the short-term unemployment rate and the still-unusually high rate of people unemployed for longer than six months.

For now, the change in language about what could change the Fed's policy leads to little change in the policy itself. The Fed is still going to leave rates that it controls near zero for at least another year, while reducing its purchases of Treasuries and mortgage bonds that have been keeping market interest rates low.

Thirteen of the 16 FOMC participants at this meeting think the central bank will first raise the fed funds target rate in 2015 -- nearly unchanged from the 12 Fed governors and regional Federal Reserve Bank presidents who thought so in December, the last time the Fed released the data. 

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