Federal Reserve to reveal more often what's on its mind

International Herald Tribune

WASHINGTON: Ben Bernanke, chairman of the Federal Reserve, moved to break down even further the aura of secrecy that historically has enshrouded the institution that sets U.S. interest rates, pledging Wednesday to improve its communications with investors and the public.

Bernanke said the time had come for the Fed to inform the U.S. public four times a year - not twice, as is current practice - of its projections for the economy. And when it gives those forecasts, it will say what it thinks the business environment will be for the following three years - not two.

These forecasts, a kind of Fed report card to consumers and businesses, will state the expected pace of economic growth, the anticipated unemployment rate and whatever policy makers can divine about inflation. However, the Fed will also say expressly - and in unprecedented detail - what policy makers were thinking on a given issue and will furnish more details about whatever risks might be in play.

Bernanke, who announced the changes during a speech on monetary policy held at the Cato Institute here, called them an "important advance" in the Fed's communications strategy.

The first expanded set of reconfigured projections will be released Tuesday, when the Fed will also publish the minutes of the policy makers' meeting in October.

The announcement marked the biggest move yet by Bernanke, who has been chairman since February 2006, to put his imprint on the Fed after succeeding Alan Greenspan. One of his main goals has been a desire to make the Fed a more open institution. Greenspan made progress on that front during his 18 and a half years at the helm, but Bernanke has sought to open the door even further, providing investors, businesses and individuals with more insights into the thinking of Fed policy makers.

Doing that, Bernanke said, helps the Fed do its job - keeping the economy and inflation on an even keel.

Carl Tannenbaum, chief economist at LaSalle Bank, said the additional forecasts would give Fed watchers plenty to parse when trying to divine the Fed's next move on interest rates.

"For people in financial markets, this will be a treasure trove of new information. But I don't think the average person will take the time to pore through the information," Tannenbaum said.

On Capitol Hill, lawmakers welcomed Bernanke's effort to demystify the Fed.

"At a time when the domestic and world economies are changing rapidly, more information can only benefit American families, policy makers and businesses," said Senator Chuck Schumer, Democrat of New York.

Improving the public's understanding of the Fed's objectives and strategies reduces uncertainty, allowing businesses and individuals to make more informed financial decisions, Bernanke said. If investors have a better understanding of how Fed policy is likely to respond to incoming information, stock prices and bond yields will tend to respond to economic data in ways that further the central bank's objectives, he added.

"The changes will provide a more timely insight into the Fed's outlook, will help households and businesses better understand and anticipate how our policy decisions respond to incoming information and will enhance our accountability for the decisions we make," he said.

Fielding questions after his speech, Bernanke stressed that he was especially interested in getting feedback from investors, companies and members of the public on the Fed's communications changes. "We'll consider all suggestions as we go forward," he said.

In 2008, the expanded projections will be published in the minutes released after the Fed's meetings on monetary policy. They will continue to be described in the Fed's twice-yearly economic reports to Congress, Bernanke said.

In his speech and in brief remarks afterward, Bernanke did not discuss the future course of interest rates. The Fed in late October sliced its main interest rate to 4.50 percent, the second cut in six weeks, to help the economy survive the strains of a severe housing slump and a credit crunch. At that meeting, Bernanke and his colleagues hinted that those two rate cuts might be all that was needed to keep the economic expansion intact, although some investors and economists are still looking for another rate cut at the next meeting, on Dec. 11.