Bloomberg News

Plosser Says Fed Should Be More Open About Policy Making

June 01, 2012

Federal Reserve Bank of Philadelphia President Charles Plosser said the central bank should be more open about how it sets monetary policy.

“We can and should improve our discussion of the economy and our approach to policy through the publication of a more comprehensive monetary policy report to the public,” Plosser said in an essay posted to the Philadelphia Fed’s website. “We can also better define our reaction function, to enable the public to better understand and anticipate future policy actions.”

Plosser endorsed the steps the Fed took this year to boost communications, including revealing policy makers’ forecasts for interest rates and adopting an inflation target of 2 percent. Since becoming chairman in 2006, Ben S. Bernanke has pushed the central bank to increase its openness and public understanding of the Fed, including by holding regular press conferences.

“Economic research has shown that increased transparency can improve the effectiveness of monetary policy, as well as the Fed’s accountability with the public,” Plosser said.

The Philadelphia Fed chief said the policy-setting Federal Open Market Committee is “still some way from agreeing on one systematic policy rule or reaction function,” and that one way to try to achieve such a goal “would be to describe the variables that are important for our reaction function.”

Plosser also reiterated his concern the Fed has “contributed to the breakdown of the boundaries” between monetary and fiscal policy by allocating credit to specific asset classes and through the bailouts of firms including Bear Stearns Cos.

“We must seek ways to ensure that our central bank preserves its independence and that the boundaries between monetary and fiscal policy are restored,” Plosser said.

To contact the reporter on this story: Caroline Salas Gage in New York at csalas1@bloomberg.net

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


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