Bloomberg News

Duke Says Fed Aims to Improve its Communications on Policy

January 16, 2012

(Updates with comment on inflation in sixth paragraph.)

Jan. 16 (Bloomberg) -- Federal Reserve Governor Elizabeth Duke said the central bank aims to improve how it communicates policy to the public, adding she believes setting an inflation target wouldn’t impede its effort to ensure full employment.

“Recognizing the importance of communications as a policy tool,” the Fed “has been engaged in a conversation about how we might better explain our framework for decision making,” Duke said today in a speech at the University of Richmond in Richmond, Virginia.

Duke said she does “not believe that establishing an inflation target is inconsistent with a commitment to both parts of the dual mandate” set by Congress, which includes promoting price stability and full employment. Maintaining long term expectations for price increases would give the central bank more “flexibility” to address short-term unemployment, she said.

At the next Federal Open Market Committee meeting on Jan. 24-25, the Fed’s 12 presidents and five governors will, for the first time, publish their own expectations for the future course of monetary policy.

Inflation doesn’t appear to pose an immediate threat, Duke said in response to an audience question.

“It looks like inflation is pretty well contained,” she said. “It’s hard to see where the inflationary pressure is going to come from,” she said.

Duke, a former president of a community bank, said she sees a need for the Fed “to make monetary policy decisions that are free of short-term political influence.” Political pressure might lead the central bank to make decisions that lead to higher inflation in the long term, which diminishes confidence and credibility, she said.

--Editors: James Tyson, Laurie Asseo

To contact the reporters on this story: Alex Kowalski in Richmond at akowalski13@bloomberg.net

To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net


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