by Calculated Risk on 11/13/2013 09:41:00 PM

From Jon Hilsenrath at the WSJ: Fed Debates Low-Rate Peg

The Fed has said for months it won't raise short-term interest rates from near zero until the unemployment rate, which was 7.3% in October, falls below 6.5%, as long as inflation doesn't move above 2.5%. Fed officials believe the promise, known as "forward guidance," helps hold down long-term borrowing rates, which in turn encourages borrowing, investment and spending.

There are several ways they could strengthen their message. One idea under discussion is to lower that unemployment threshold from 6.5%, which could mean keeping rates down longer. Fed staff research suggests the economy and job market might grow faster, without much additional risk of inflation, if the Fed promised to keep rates near zero until the unemployment rate gets as low as 5.5%. Goldman Sachs economists predict the Fed will lower the threshold to 6% as early as December and reduce the bond-buying program at the same time.

Minutes of recent Fed meetings show officials have been debating the idea for several months and recent comments by officials show it is in the mix of discussions ahead of the Fed's next policy meeting on Dec. 17 and 18, though such a move may or may not happen then.

Thursday:
• At 8:30 AM ET, the initial weekly unemployment claims report will be released. The consensus is for claims to decrease to 330 thousand from 336 thousand last week.

• Also at 8:30 AM, the Trade Balance report for September from the Census Bureau. The consensus is for the U.S. trade deficit to increase to $39.1 billion in September from $38.8 billion in August.

• At 10:00 AM, the Confirmation Hearing for Fed Chair nominee Janet Yellen.

• At 11:00 AM, the Q3 2013 Quarterly Report on Household Debt and Credit will be released by the Federal Reserve Bank of New York.