WASHINGTON (Reuters) - The once-secretive Federal Reserve on Wednesday announced steps to offer more insight on its views of the economy and the likely path of interest rates in a bid to make U.S. monetary policy more effective.
By Mark Felsenthal
WASHINGTON (Reuters) - The once-secretive Federal Reserve on Wednesday announced steps to offer more insight on its views of the economy and the likely path of interest rates in a bid to make U.S. monetary policy more effective.
The Fed said it will release the economic projections of its policy-makers four times a year instead of two, and the forecasts will cover three years, up from two previously.
In a speech detailing the changes, Fed Chairman Ben Bernanke said central bank transparency increases the effectiveness of monetary policy and enhances economic and financial performance by reducing uncertainty and allowing financial markets to anticipate policy changes.
"Providing more information about these forecasts, including discussions of the factors underlying the forecasts and of (Fed) participants' assessments of the risks to the committee's objectives, should improve the public's understanding of the rationale for the current stance of monetary policy and any changes to that stance," he said.
Analysts said the longer-term forecast horizon would offer a better sense of the rate of inflation officials were aiming for but the changes would not remove uncertainty on how the central bank would try to meet its objectives.
The changes "will give more insight into what the (Fed) feels is the long-run potential growth rate of the economy and what an acceptable range is for the rate of inflation," said Michael Moran, chief economist at Daiwa Securities America in New York.
"But I don't think it will make it any easier to form judgments about what the (Fed's interest-rate setting) Federal Open Market Committee will do meeting to meeting."
The Fed will publish the expanded forecasts beginning next week with the minutes of its October 30-31 meeting, Bernanke said. In 2008, the Fed's forecasts will appear with the minutes of the Fed's January, April, June, and October meetings, which are usually released three weeks after the gatherings.
"I find it helpful to think of the projections as functioning in three different ways: as a forecast, as a provisional plan, and as an evaluation of certain long-run features of the economy," Bernanke said.
In keeping with past practice, each member of the FOMC will make a forecast based on their own assumptions about the interest-rate path most likely to achieve the Fed's dual goals of price stability and full employment, Bernanke said.
Bernanke had pledged to bring greater transparency to the U.S. central bank when he took the reins of the institution on February 1, 2006, and the steps announced on Wednesday marked the culmination of an extended internal review of the Fed's communications policies.
The Fed stopped short of adopting an explicit numerical goal for acceptable inflation, an approach Bernanke had advocated and one policy-makers had discussed in their review.
However, Bernanke said the Fed remained open to future changes, and he declined to rule out the possibility the central bank could one day adopt an inflation target.
Some U.S. lawmakers had objected to explicit inflation targets, saying they would give undue weight to curbing inflation at the expense of fostering steady economic growth, in violation of the spirit of the Fed's dual mandate to ensure low unemployment while maintaining steady prices.
Bernanke said some aspects of inflation targeting may not be suited to the U.S. central bank, which must be accountable for the effects of its policies on the broad economy, not just on inflation.
"Although inflation-targeting central banks certainly pay attention to economic growth and employment, their formal accountability is often largely couched only in terms of a price-stability objective," he said.
(Editing by Neil Stempleman)
