Fed Plans Transparency Steps

Greg Ip, WSJ:

Federal Reserve officials are nearing consensus on several steps to make their deliberations more transparent to the public, but are likely to defer one of Chairman Ben Bernanke's longstanding goals: an explicit inflation target.

The centerpiece of their new communications steps would be the release of economic forecasts of policy makers four times a year, instead of the current two times, with additional detail and background... Moreover, the horizon for those forecasts would be extended to three years from two.

The ... Fed had hoped to finalize them by this month. But the fallout of the market turmoil that erupted in August has complicated the agenda of next week's meeting of the policy-making Federal Open Market Committee and it may defer decisions on its communications policy to a later meeting. ...

While the idea of setting an inflation target hasn't been shelved, officials say it needs more discussion. ... For Mr. Bernanke, deferral of an inflation target represents a setback, but he can chalk up a tactical victory for forging a consensus on other steps. ...

At his nomination hearing in 2005, Mr. Bernanke restated his preference for a target while promising "extensive discussion and consultation" and "no precipitate steps." ...

The FOMC as a whole is still not ready to take the step. One concern is that Congress, having taken a more populist turn since Democrats took power in 2006, could perceive a target as subordinating the Fed's responsibility for employment, despite Mr. Bernanke's insistence to the contrary. Another is that officials don't think the current system is broken.

At present, the FOMC meets eight times a year, and at two of its meetings, members submit forecasts for the current and next year on growth, inflation and unemployment that are included in a report to Congress. The "central tendency" of those forecasts -- a range that excludes the extreme projections -- garners the most attention. ...

At present, the post-meeting FOMC statement and the minutes aren't expected to be altered significantly.