Federal Reserve & Interest Rates

Vice Chairman Donald L. Kohn delivered a speech regarding the communications of the FOMC.  In October, the decision was made that the Federal Reserve needed to improve communications, and make more policy and outlook information available to the public.  Since then, the Fed has made an effort to release as much information as possible, with much criticism.

One of the major complaints was that the ambiguity and mixed messages on the outlook that occur as a result of different members delivering their take on the economic situation.  Each individual have a different perspective, and with the fluctuating data, market performance, and economic uncertainty, how can all members feel the same way?  Kohn expressed the following on the issue:

“The public should understand that the FOMC members do not coordinate schedules and messages, and that members’ views are likely to be especially diverse when, as in the current situation, circumstances are changing quickly and are subject to many different analyses.  The diversity of views on the Committee is one of its strengths and vital to arriving at sound decisions.  As I noted in the introduction to this talk, sound decisions are the most important contributions we can make to further the accomplishment of our public policy objectives.”

Vice Chairman Kohn made it clear that this new communication policy is a “work in progress.”  He stated, “we move slowly in changing what we say in part because ill-conceived communication policy has the power to harm the economy, and, even if that harm were to be realized, the policy could be difficult to alter.”  Kohn also commented that the Fed is trying to avoid giving the impression that they know more than they actually do when making statements.

At the start of his speech, Kohn stated that “Good communication is a complement to good policy, not a substitute for it.”  He expressed the view that clear explanations, good public framework and market feedback would “help to promote good policy.”

The bottom line is that the FOMC is doing the best they can to help the public understand the current economic situation, and they are not at the point where the communication methods are beyond the need for adjustment.