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 Loretta Mester, president of the Cleveland Fed and a member of the
central bank's communications committee, detailed three "suitable
amendments" to widely cited charts that the Fed publishes quarterly
showing the expectations of its individual policymakers.
The so-called summary of economic projections (SEPs), informally
known as the "dots" charts, are often criticized for confusing
investors. They show anonymous predictions for economic growth,
inflation and unemployment, as well as how high the key federal
funds rate will be in coming years.
Mester said the Fed should clarify, without naming names, that an
individual policymaker made a specific array of predictions. It
should also adjust the SEPs to show the degree of uncertainty
officials attach to their predictions, she said.
Finally, the Fed should somehow highlight the "consensus view" - or
the stance of Fed Chair Janet Yellen and other core policymakers -
separately from the outlying views.
"Although there is a diversity of views on the committee, I believe
there is enough common ground to encourage us to seek progress along
the lines I am suggesting," Mester, who took the helm in Cleveland
in June and is a voter on Fed policy this year, told a Money
Marketeers audience of bond traders.
"Our efforts will be rewarded because clear communications will lead
to better economic outcomes and help make the trip back to normal a
smoother ride," she said.
The dots charts have been published since January 2012 as part of
the Fed's post-crisis transparency push. But they have been
criticized for sowing more confusion than clarity because they show
a wide array of views that do not always align with the Fed's formal
policy statement, or with Yellen's comments.
The latest forecasts, published after a September Fed meeting,
showed two policymakers recommended near-zero interest rates at the
end of next year, one recommended 3 percent, and the rest of the
dots were scattered in between. The range is from 0.25 to 4 percent
by the end of 2015.
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That array can confuse investors, companies and individuals trying
to predict when borrowing costs will rise. As it stands, financial
markets generally expect the first rate rise to come midway through
next year.
Back in September, Yellen noted that the uncertainty grows as
predictions run deeper into the future, and stressed that policy
will hinge on how the economy evolves.
On Thursday, Mester urged the Fed to clarify how it systematically
assesses the economy's progress toward the central bank's dual goals
of 2-percent inflation and maximum sustainable employment.
Mester also repeated her preference for the Fed's policy statement
to clarify that policy changes, including the rate rise, will hinge
on the state of the economy and not a calendar date. The statement
published last week, endorsed by Mester, said it will be a
"considerable time" before a rate hike.
(Reporting by Jonathan Spicer; Editing by Leslie Adler and Lisa
Shumaker)
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