The Federal Reserve plans to give the public a first-ever view of where Fed officials see interest rates heading in coming months and years.
It won’t be a firm predictor of Federal Reserve policy, but economists say the move will help give investors a better glimpse into the thinking of central bankers and their possible course of action.
Starting later this month, a quarterly Federal Reserve summary of economic projections (SEP) report will include information about the outlook from the various particpants on the central bank’s policy committee. These forecasts will focus on the so-called federal funds rate, the short-term interest rate for loans among banks that the Federal Reserve determines through its policy.
“The SEP … will report participants’ current projections of the likely timing of the first increase in the target rate given their projections of future economic conditions,” the Federal Reserve said in minutes released Tuesday. That would accompany forecasts showing what the officials see as an appropriate federal funds rate for the final quarter of the year and the next few years.
The move is another step toward greater transparency, a hallmark of the Federal Reserve under Chairman Ben Bernanke.
The bank is under pressure to find ways to better influence the trajectory of a now-weak economy, and to improve its own public image at a time when some politicians are harshly critical of its actions.
Although the statement implies that the range of forecasts by individual Federal Reserve officials will now be visible, some economists cautioned that actual names (like “Ben Bernanke”) may not be paired with the predictions.
Still, the new data will provide significant information to Fed watchers, including economists and investors.
The Federal Reserve has been criticized in recent months after issuing a vague statement that it expects short-term interest rates to remain very low through the middle of 2013. While intended to reassure financial markets that the Federal Reserve is determined to spur a tepid recovery forward, it also leaves many wondering when — and based on what indicators — the policymakers will eventually raise rates.
At best, the move is just a modest boost for the economy, adding a new tool for the imperfect art of US monetary policy. But the move could help the Federal Reserve manage expectations about its policies and their effectiveness, economists say.