Graph of the day: How the Fed became more dovish

The big news of the day is that the Federal Reserve is taking new steps to stimulate the U.S. economy. Specifically, the central bank will promise to keep interest rates low until either unemployment falls below 6.5 percent or inflation rises to 2.5 percent. (The central bank will also begin buying $45 billion in Treasury bonds each month, though that was largely expected.)

Economists like Scott Sumner and Michael Woodford have been urging the Fed to take more action for a while now, but the central bank has moved slowly. The chart below, from Reuters, shows how members of the Federal Open Market Committee have become steadily more dovish over the course of this year.

Back in January, many Fed officials thought the central bank would need to start raising interest rates very soon, in 2012 or 2013, to fight inflation. But those views shifted in the months that followed.

By December, the majority of the FOMC thought the central bank won't need to start tightening until 2015 or even 2016. And now, for the first time, the Fed is saying that it won't start tightening until either the labor market improves significantly or inflation hits 2.5 percent.

The shift in stance has been gradual. All year, Federal Reserve Chairman Ben Bernanke has presumably been persuading his fellow central bankers to get on board with new stimulus efforts, including another round of "quantitative easing" — in which the Fed buys bonds and other assets to lower long-term interest rates and boost the economy. At the same time, some inflation hawks on the FOMC, like Narayana Kocherlakota, have softened their views, conceding that inflation isn't a big problem right now and that the country needs more stimulus.

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Amrita Jayakumar · December 12, 2012