Federal Reserve chairman Ben S Bernanke could double press briefings to improve understanding of policy changes that may include signaling interest rates would stay near zero longer, economists said.
Adding briefings “is a viable option because Bernanke has been an effective communicator” of policy aims, said Sam Bullard, senior economist at Wells Fargo Securities. Fed officials may also replace their pledge to keep the benchmark rate close to zero through mid-2013 with a description of circumstances under which rates would rise, said Keith Hembre, chief economist at Nuveen Asset Management in Minneapolis.
Extending low interest rates would signal Fed officials aren’t convinced that recent improvement in growth is sufficient to reduce unemployment at a satisfactory pace. Fed policy makers may decide on the changes as soon as their two-day meeting ending January 25, the first of the year, when Bernanke gives a press conference a few weeks ahead of his semiannual testimony to Congress.
“Just because the economy’s improving, doesn’t mean it’s improving enough,” said Diane Swonk, chief economist in Chicago at Mesirow Financial Inc., which oversees about $59 billion in assets. “You can get a forecast that implies a fed funds rate low well into mid-2014 given their current forecast.”
Fed policy makers meet eight times a year. The Fed announced last March that Bernanke, 58, would hold press conferences four times, following each two-day meeting, where governors and regional presidents present revised projections for economic growth, inflation and unemployment. Bernanke has since answered media questions three times: in April, June and November. The Fed doubled the frequency of forecasts in 2007 to four from two.
New Strategy
While adding press conferences isn’t one of the options mentioned in minutes of Fed discussions of the new communications strategy since September, Swonk said she wouldn’t be surprised if policy makers took such a step.
Bernanke “is a good teacher,” she said. “This is his strength.”
Fed policy makers are debating two kinds of changes to their public communications: how to express the length of time that interest rates will stay close to zero, and how to articulate a long-term strategy for monetary policy that may include objectives for inflation and employment, according to minutes of the Nov. 1-2 Federal Open Market Committee meeting.
Some officials wanted to replace the pledge to keep interest rates near zero until at least mid-2013, which was enacted in August, with language specifying a period of time, according to records of the FOMC meeting.
Some FOMC members leaned toward additional easing, the minutes said. Chicago Fed President Charles Evans has been the most vocal official in saying the central bank should keep rates low until inflation or unemployment reach specified levels.
Also, a majority of officials last month “agreed that it could be beneficial” to publish a statement on the Fed’s policy approach and discussed the pros and cons of such strategies as an explicit numerical inflation goal, something used by the European Central Bank and Bank of England. The complication for the Fed is its added legal mandate of fostering maximum employment, the minutes show.
