Bernanke's new-look Fed

Ben Bernanke gave the Cato Institute a handsome anniversary gift for their 25th annual monetary conference this morning. He used the occasion to announce new procedures for  disseminating information about Fed policy. Starting with the release of the October 30th FOMC minutes (due on November 20th) the Fed will provide "a fuller discussion of the projections", projections for a slightly different set of  variables (add PCE inflation, subtract nominal GDP), an outlook that extends three years instead of just two, and a quarterly publication schedule instead of semi-annual. Read the text of Bernanke's talk here.

It is all in the interests of fuller disclosure. Bernanke has often emphasised the benefits of  providing more information about the Fed's thinking--a point on which he and Alan Greenspan (champion of turgid opacity) do not see quite eye to eye--and, for related reasons, has long been on record as preferring an explicit inflation-target regime. The new procedures are not that, by a long way, though they could be construed as a step in that direction. In any event, good for Bernanke.

One questioner asked whether the new releases would include a "fan chart" of the Fed's inflation forecast, like the one produced by the Bank of England. Bernanke said there would be a chart that looked like that, but that it would be a quite different thing.  The Bank publishes a single consensus forecast, with confidence bands around it. The Fed will publish a range of forecasts based on the individual projections of FOMC members--so the chart will indeed look like the Bank's fan--together with an indication of central tendency. Not the same thing at all. An oddity, to my mind, of the Fed's approach is that  each FOMC member makes  his inflation forecast on the basis of his own assumption about what "appropriate monetary policy" would be. I'd say it is debatable whether folding this extra variable into the mix adds to or subtracts from the information content of the release. The answer, I suppose, will depend on how much extra detail the promised "fuller discussion" goes into.

Another questioner asked why the Fed was dropping nominal GDP as an indicator--the question I would have asked had I been able to squeeze into the auditorium rather than settling for more space in an overflow room. I learned more of my macro than I should admit from devoted reading of Sir Samuel Brittan in the FT, and so I have a sentimental as well as intellectual attachment to nominal GDP. Out of habit, when I look at an economic forecast, it is still the number I check first. The questioner, Mickey Levy of Bank of America, pointed out (very much in the spirit of Sir Samuel) that dropping nominal GDP might encourage commentators to believe that monetary policy can independently influence real and nominal quantities  (ie, output and inflation), whereas in the short run it acts on both simultaneously, and this is a key constraint on the Fed's ability to steer the economy. Bernanke said the Fed would wait to see if people missed the nominal GDP number. So far as he was concerned, it didn't add much to what the Fed would be releasing. Humph, I thought.

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