Fed should better explain decisions, says Cleveland president

investmentnews.com:

Federal Reserve Bank of Cleveland President Loretta Mester said the US central bank should consider ways to better communicate to the public how economic conditions will affect future policy decisions.

Speaking in Tokyo on Tuesday, Mester recommended two key changes: adding more words to the Fed’s post-meeting policy statement – to describe how officials assess economic developments and potential risks to the outlook – and more detail to its quarterly summary of policymakers’ economic forecasts.

“Enhancements to communications would make monetary policy more effective in normal times and also improve the effectiveness of nonconventional policy tools, such as forward guidance, in extraordinary times,” she said in prepared remarks at a conference hosted by the Bank of Japan.

The Cleveland Fed chief, who votes on the Fed’s policy-setting committee this year, said she expects officials to consider communications as part of the five-year review of their policy framework set to kick off toward the end of 2024. She did not comment on the outlook for the economy or interest rates.

Mester said increasingly short policy statements, while often seen as a virtue, can also be problematic as each word takes on added significance. They can also make it harder for the public to see the link between economic developments and policy decisions.

She said it would be better for policymakers to “take control of the narrative” and use more words to describe how economic developments have affected the outlook, and the potential risks to that outlook.

Putting more emphasis on risks “would give market participants and the general public a better sense of the contingent, data-dependent nature of policymaking and would raise the central bank’s