Fed to Make Monetary Policy Projections Public
The U.S. Federal Reserve on Tuesday said it would begin publishing forecasts on the path of interest rates later this month, a move that could suggest rates will be on hold for longer than previously expected.
The move is meant to better align bets in financial markets with the views of policymakers at the central bank and is a significant milestone in Ben Bernanke's push for greater policymaking transparency.
The Fed has held the overnight federal funds rate close to zero since December 2008. In statements after its last four policy meetings, it has said it expected to keep rates ultra low until at least the middle of 2013.
But policymakers have chafed at a pledge that was both tied to the calendar and static, and many investors think rates will be on hold for even longer.
In minutes from its Dec. 13 meeting, released on Tuesday, the Fed said it will publish projections for the path of the federal funds rate along with its regular quarterly economic forecasts after its next meeting on Jan. 24-25. It also said officials would provide forecasts for the first rate hike.
"The Fed believes that by publishing a projected path for short-term interest rates for the next few years and by also saying when it thinks rates will first be raised long-term interest rates will fall further," said Paul Dales, senior U.S. economist for Capital Economics.
The minutes said a number of Fed officials believed economic conditions could "well" warrant a further easing of monetary policy, and that an enhanced communications framework could make any policy shift more effective.
However, a few others believed further stimulus would be a bad idea, a sign of the ongoing tussle at the central bank over whether the U.S. economy needs more help.
At its December meeting, the Fed warned that turmoil from Europe's debt crisis posed a major risk to the U.S. economy and it left the door open to further steps to boost growth, even though it noted a somewhat stronger labor market.
Publishing rate path forecasts is likely to cool any financial market anticipation that modest improvements in the economy might mean a step by the Fed to tighten financial conditions could be drawing nearer.
Some officials worried the central bank's current pledge that rates would stay ultra-low until at least the middle of 2013 might have to be adjusted before long, according to the minutes.
In publishing rate forecasts, the Fed is following the example of other central banks, including Sweden and Norway, and taking a step toward the greater policy transparency that Chairman Ben Bernanke had promised when he took office in 2006.
Policymakers last month also considered adopting a statement of their longer-run goals and strategy, a step analysts said could incorporate a formal inflation target.
However, it took no action and officials agreed to debate the subject further at their meeting later this month.