Fed's policy "thresholds" plan surprised dealers: poll

NEW YORK (Reuters) - Very few Wall Street economists expected the U.S. Federal Reserve to adopt policy thresholds at its last meeting, results from a New York Fed poll of primary dealers showed on Friday, highlighting how surprising was the decision.

The 20 dealers, who have access to the central bank's discount window, were polled before the Fed's December 11-12 policy meeting. At the meeting the Fed ultimately decided to tie low interest rates to specific unemployment and inflation levels, or "thresholds."

Dealers gave only a 10 percent chance that the Fed would adopt such thresholds at the December meeting, and respective 20 percent and 30 percent chances at the following two policy meetings, according to the median poll response.

Under the thresholds plan, the Fed will keep its federal funds rate near zero until the unemployment rate drops to 6.5 percent, from 7.8 percent now - unless the inflation outlook edges up to 2.5 percent.

Asked how much in bonds they expected the Fed to purchase, the dealers polled were generally correct in predicting $45 billion in Treasuries and $40 billion in mortgage-backed securities.

One year out, the dealers said they expected Fed purchases of $35 billion in Treasuries and still $40 billion in MBS, based on the median of poll responses.

That prediction may have recently changed.

Minutes from the December meeting, released on Thursday, showed "several" Fed policymakers expected to slow or stop the so-called quantitative easing program, dubbed QE3, "well before" the end of the year - news that prompted a drop in stocks and bonds, and a rise in the dollar.

The Federal Reserve Bank of New York unveiled the poll results on Friday.

(Reporting by Jonathan Spicer; Editing by Andrea Ricci)

Source: http://news.yahoo.com/feds-policy-thresholds-plan-surprised-dealers-poll-211339077--business.html

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