Fed to Introduce Game Changing Communications Policies

The Federal Reserve plans to introduce changes to its communications policies to the public on Wednesday, making it easier for the central bank to move ahead with another round of asset purchases later this year by helping to explain the need for additional stimulus.

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However, officials have said that it has no plans for further easing so long as the economy continues to recover. The Fed has lately been able to focus on communication in large part because it no longer must devote all of its energy to crisis management. Fed Chairman Ben Bernanke has waited five years to make these improvements.

Central to the new policies is the plan to publish the predictions of senior Fed officials about the level at which they intend to set short-term interest rates over the next three years, including when they expect to end their commitment to keep rates near zero.  The Fed also will describe the expectations for the management of the central bank’s investment portfolio.

After a two-day meeting of the Federal Open Market Committee, which will begin Tuesday, the Fed will publish the first forecast, and may also publish a statement describing the its goals for the pace of inflation and level of unemployment, neither of which has ever been formalized.

By being more transparent, the Fed hopes to garner more public support for its policies. But several Fed officials have said they are hesitant to support new efforts to improve growth because they think monetary policy has exhausted most of its power since the last recession began. They have also expressed concern about inflation.

“Steady even if unspectacular growth accompanied by inflation in the neighborhood of 2 percent justifies some reluctance to change, in either direction, the F.O.M.C.’s accommodative policy,” said Dennis P. Lockhart, president of the Federal Reserve Bank of Atlanta.

However, the persistence of high unemployment requires that the Fed keep thinking about doing more, added Lockhart, though Fed officials have made clear that high unemployment in itself is insufficient cause for additional action, at least as long as inflation remains near 2 percent.

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To contact the reporter on this story: Emily Knapp at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com