The president and CEO of the Federal Reserve Bank of Atlanta, Dennis Lockhart, took his boss’ commitment to more communication about the bank’s policies to Japan May 21.
Over the past year, Ben Bernanke, the Fed’s chairman, has broken from an institutional tradition of guarded communication by holding quarterly press conferences and college lectures about the Fed’s monetary policies.
The Fed has held interest rates near zero since 2008 and it has sought to further reduce long-term rates through the purchase of Treasury securities and mortgage bonds. In January, it said it would keep rates low through 2014
Traditionally the activities of the Federal Open Market Committee (FOMC), which sets the Fed’s short-term monetary policies, have been cloaked in secrecy in order to protect the country from speculation about whether interest rates would go up or down.
But as the Fed’s hands have been increasingly tied in terms of its monetary policy by the country’s slow recovery, Dr. Bernanke has placed more emphasis on communication of the bank’s intentions as a policy tool.
The Tokyo chapter of the Institute of Regulation and Risk, North Asia, a non-profit organization providing a neutral platform to provide greater industry understanding of business issues, invited Mr. Lockhart to speak about the effectiveness of U.S. monetary policy.
Mr. Lockhart, who is a voting member this year of the FOMC, agreed on the grounds that his comments would be considered as his personal views only.
He defined the U.S. recovery as “slow,” adding that the FOMC has been unable to resort to its familiar short-term interest rate instrument to provide further stimulus to the economy, which would continue to experience moderate inflation of about 2 percent.
He also spoke about the inability of monetary policy, despite its power as an economic tool, to cure “deep structural problems such as fiscal imbalances or trade imbalances resulting from a lack of competitiveness.”
He did not rule out more “quantitative easing” in the future because of continued slow growth and the risks still presented by European economies.
In what he termed a “thought experiment,” he envisioned a world of perfect central bank communication.
“I would argue that communication approaches perfection when the broad, attentive public understands how the monetary authority is going to behave,” he said.
“In this imagined world, consumers, businesses, savers and investors can make appropriate adjustments to their decisions and behaviors as each indication of the economy’s trajectory become known.”
In such a world, he added, “communication promotes the efficient functioning of financial markets,” concluding, “In my view, working toward this end is the right undertaking of the FOMC at this moment.” But, he qualified his statement, saying “even if it is not fully achievable.”
To see the full text of his speech, go here.