Changes in Fed Communications in Recent Years

Thursday, July 03, 2014

Monetary policy responses during the financial crisis and recession underscored the importance of increased communication about policy decisions. Over the past few years, the Fed has taken several steps to improve communications regarding monetary policy decision-making. One example of this increase in transparency is the release of the Federal Open Market Committee’s (FOMC’s) economic projections four times a year instead of two.

The Federal Reserve Bank of St. Louis’ main economic database, FRED, now contains the FOMC’s latest economic projections. The FRED series include the central tendency and range for the real GDP growth rate, the unemployment rate, headline PCE inflation and core PCE inflation from the FOMC’s Summary of Economic Projections (SEP). The following chart illustrates a few series that are available:

To see how the projections have been revised, past vintages are available in ALFRED back to November 2007 for most of the series.1 At that time, the FOMC made some changes to its economic projections, including expanding the content and releasing the projections more often, as already mentioned.2

Other examples of changes in communications in recent years include:

Press Conferences and Speeches

The Fed chair holds press conferences four times a year following FOMC meetings. During these question-and-answer sessions with the press (the first of which occurred April 27, 2011), the chair discusses the FOMC’s projections and monetary policy decisions in more depth.

In addition to the chair’s press conferences, the FOMC participants frequently give speeches and interviews explaining recent policy decisions and presenting their own views on monetary policy. (See FOMC Speak.)

Inflation Target

In January 2012, the FOMC named an explicit inflation target of 2 percent. As St. Louis Fed President James Bullard noted in the April 2012 issue of The Regional Economist, “Inflation targeting emphasizes control over inflation as the key long-term goal of monetary policy. … Keeping inflation low and stable helps the market economy allocate resources optimally, which then leads to the best possible employment outcomes.”

Federal Funds Rate Projections

Also in January 2012, the FOMC began releasing projections for the policy rate along with those for growth, unemployment and inflation.  The SEP now includes FOMC participants’ assessments of the timing of the initial increase of the target federal funds rate and the path of the target federal funds rate,3 which has been near zero since December 2008.

Further Improvements

In speeches and articles, President Bullard has suggested additional ways in which Fed communications may be improved further. One way would be to have a press conference after every FOMC meeting.4 Another would be to release a quarterly monetary policy report for the U.S., similar to what other central banks publish.

“A quarterly monetary policy report could potentially provide a more complete discussion of the state of the U.S. economy and the likely direction going forward,” President Bullard said in the April 2013 issue of The Regional Economist. “The main benefit of a quarterly monetary policy report would be improved communication with financial markets and the American public about how the FOMC views the key issues facing the U.S. economy. This view could serve as a benchmark for the discussion of monetary policy and the state of the economy, both for policymakers and for those in the private sector.”

Notes and References

1 For the longer-run projections, past vintages are available in ALFRED back to February 2009.

2 See the press release from the Board of Governors on Nov. 14, 2007.

3 For instance, see the projections released on June 18, 2014.

4 See, for example, President Bullard’s speech on Dec. 9, 2013.

Additional Resources

Posted In Federal Reserve  |  Tagged fomcFREDprojectionstransparency
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