Federal Reserve pledges to reveal interest rate forecasts

Share this article and your comments with peers on social media Fed warns U.S. financial system remains vulnerable “Despite the recent run of data that points to a pickup in real GDP in the fourth quarter, today’s FOMC meeting minutes show that Fed policymakers are concerned with downside risks to the outlook stemming from ‘strains in global financial markets’, notes RBC Economics, adding, “It is these concerns that are keeping the door to additional policy measures open.” RBC says that the adoption of a new communications policy, which, starting in January, will include forecasts for the Fed funds rate along with projections for inflation and growth, “will provide the Committee the opportunity to best introduce any further measures, such as another round of mortgage bond purchases or the extension of the period of highly accommodative levels of the Fed funds rate target in the event that risks to the outlook start to materialize early this year.” The Fed said that it hopes that including their projections for the fed funds target rate will “help the public better understand the Committee’s monetary policy decisions.” TD Economics says that the these latest improvements to the Fed’s communication strategies are “a testament of Chairman Bernanke’s constant drive for more transparency, but also an attempt to improve the transmission of lax monetary policy into stronger real economic activity in every possible way.” It also expects that the release of these projections “will provide valuable insight into the degree of divergence of FOMC members’ views, as well as a better sense of what ‘exceptionally low levels for the federal funds rate at least through mid-2013′ actually means.” “Moreover, participants’ profiles for the target interest rate should also shed some light on when they expect the Fed to start normalizing the size of its balance sheet,” it adds. Not much has changed in the U.S. Federal Reserve Board’s outlook for the economy, but its communications plans have, with the Fed pledging to reveal its interest rate projections — a move that economists are applauding. The minutes from the December 13 Fed meeting were released Tuesday, indicating that the overall economic assessment of the Federal Open Market Committee has “not changed greatly” from its previous meeting. They agreed that economic activity was expanding at a “moderate rate”, and significant downside risks remain. Related news Facebook LinkedIn Twitter James Langton Keywords Interest ratesCompanies Federal Reserve Board BoE predicts best economic year for the U.K. since 1941 Rising interest rates could dampen stimulus impact: PBO read more