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Fed Will Now Publicly Forecast Interest-Rate Changes

Filed by KOSU News in Business.
January 3, 2012

The Federal Reserve will now tell the public its expectations for short-term interest rates. In the minutes of the Fed’s Open Market Committee Dec. 13 meeting , the Fed said it would update that forecast four times a year, beginning after its Jan. 24-25 meeting.

The AP reports:

“The change marks a significant shift in the Fed’s communication strategy. It could help assure investors, companies and consumers that rates won’t rise before a specific time. This might help lower long-term yields further — in effect providing a kind of stimulus.

“The Fed has previously said that it plans to keep its key short-term rate near zero until at least mid-2013, unless the economy improves.

“The Fed has left rates near zero for the past three years.”

The Wall Street Journal explains that some members of the Fed were concerned about the mid-2013 projection because they believed with easing inflation and the continued high unemployment rate, they would have to keep the rate at which banks lend each other money overnight at close to zero way past mid-2013.

Handing out four-time a year projections, reports the Journal, makes managing the expectations of the market easier:

“Central banks in New Zealand, Norway and Sweden are among those that publish their interest-rate forecasts. ‘You can manage expectations better if you publish your own forecasts,’ Lars Svensson, a deputy governor at Sweden’s central bank, said in a recent interview. ‘Implementing monetary policy becomes more effective.’”

[Copyright 2012 National Public Radio]

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