Federal Reserve to Increase Disclosure, Will Now Publish Economic Forecasts Quarterly
By Mike Caggeso
Associate Editor
Will the "Bernanke Era" be remembered for its own form of glasnost? Perhaps so. U.S. Federal Reserve Chairman Ben S. Bernanke and his team at the policymaking Federal Open Market Committee announced yesterday (Wednesday) that they would increase the frequency of their economic projections from twice a year to once a quarter.
Additionally, the FOMC will stretch the horizon on their forecasts from two years to three years. The FOMC will also beef up the content of its reports, the central bank said.
"FOMC meeting participants will now provide projections for overall personal consumption expenditures (PCE) inflation, as well as for real gross domestic product (GDP) growth, the unemployment rate, and core PCE inflation. Projections of nominal GDP growth will be discontinued. Summaries and explanations of the projections will be published along with the minutes of the FOMC meeting at which they were discussed," the Federal Reserve said in its announcement.
Another change is to include comparisons with previous forecasts.
"If you haven’t thrown out your Greenspan decoder ring by now, you should," Ethan Harris, chief economist at Lehman Brothers Holdings Inc. (LEH), said during an interview on Bloomberg TV. According to a report on the interview by MarketWatch.com, Harris was referring to the long-winded, jargon-laden obfuscations used by Bernanke’s predecessor, Alan Greenspan.
The intent is to provide investors with a better understanding of the deliberations undertaken, and decisions reached, during Federal Reserve meetings - including risks to the economic outlook and the disparity of views among policymakers. Investors will get a glimpse at the Fed’s new approach on Nov. 20, when the central bank is scheduled to release the minutes of its policymaking sessions of Oct. 30-31. In 2008, projections made by members of the Board of Governors and presidents of the regional Federal Reserve Banks will be published with the minutes of the Fed meetings in January, April, June and October.
Speaking at the Cato Institute in Washington, D.C., Bernanke explained the changes further, saying the committee’s projections would function in three ways - "as a forecast, as a provisional plan, and as an evaluation of certain long-run features of the economy."
In a refreshing surprise, the Fed said it would also give separate forecasts on inflation - one including the more-volatile food and energy costs and another excluding them. Predictions will include unemployment rate.
According to the Bloomberg report, Bernanke said that "good communications are a prerequisite if central banks are to maintain the democratic legitimacy and independence that are essential to sound monetary policymaking."
Bernanke noted that a more-transparent central bank would enhance U.S. economic performance by reducing uncertainly, and allowing households and economic institutions to make better decisions.
[Editor's Note: Bloomberg also has a 42-minute video of Bernanke's speech to the Cato Institute. To watch it, please click here.]
News and Related Story Links:
- MarketWatch:
Fed unveils plan to provide more timely forecasts.
- U.S. Federal Reserve:
Press Release.
- Bloomberg News:
Fed Plans to Increase Forecasts to Once a Quarter.
- Bloomberg TV Video:
Bernanke Says Fed to Increase Forecasts, Extend Horizon.
- Encyclopedia.com:
Glasnost.
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