Fed: communications are changing | Bankrate.com

The Fed's tea leaves are set to become even less obfuscated in 2012.

At the January meeting of the Federal Open Market Committee, the Fed will launch a new strategy for communicating the path that interest rates might take, the minutes from the Dec. 13 meeting show.

This is what the minutes say:

The subcommittee on communications recommended an approach for incorporating information about participants' projections of appropriate future monetary policy into the Summary of Economic Projections (SEP), which the FOMC releases four times each year. In the SEP, participants' projections for economic growth, unemployment and inflation are conditioned on their individual assessments of the path of monetary policy that is most likely to be consistent with the Federal Reserve's statutory mandate to promote maximum employment and price stability, but information about those assessments has not been included in the SEP.

Each component in the SEP typically includes a graph?that shows the range of the committee's individual projections.

Until this point, the Summary of Economic Projections has not included an interest rate forecast. Beginning this month, however, projections of the target federal funds rate will be added in order to provide more clarity to the public and financial markets.

The SEP released in January will "include information about participants' projections of the appropriate level of the target federal funds rate in the fourth quarter of the current year and the next few calendar years, and over the longer run; the SEP also will report participants' current projections of the likely timing of the first increase in the target rate given their projections of future economic conditions," the minutes show.

That means the previously stated target of mid-2013 for a rate increase could be shifting depending on the views expressed by individual committee members.

Accompanying the interest rate projections will be explanations of the factors on which they are based. Plus we'll get some information about expectations for the Fed's balance sheet. The decision to let the balance sheet reduce will be an indication less easing is needed. It will be interesting to see how participants' thoughts on that are communicated.

But that's not all; the minutes from the December meeting show the subcommittee for communications hard at work on another innovation.

In the November FOMC meeting, a policy framework was discussed that would specify long-run inflation goals, clarify policy and interpret the path of the federal funds rate. The communications subcommittee caucused on that topic and brought a draft statement of the Committee's longer-run goals and policy strategy to the December meeting.

The minutes show that even though participants agreed a statement like that could be helpful in clarifying monetary policy, it could also be confusing if it included the wildly varied opinions of individual members. The subcommittee on communications will come up with a revised draft for the January meeting.

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Source: http://www.bankrate.com/financing/federal-reserve/fed-communications-are-changing/

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