Fed weighs revamped monetary report as guide to policy

Price Stability

The statement tied “further action” to “sustained improvement in labor market conditions in a context of price stability.”

Such qualitative language communicates the committee’s priorities without specifying the triggers for action, said Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut.

“What they are trying to do is create the illusion of quantitative rigor, but the reality is there is a lot of judgment that goes into it,” Stanley said.

Since the June 20 statement, government data showed that inflation slowed and job growth lagged behind economists’ forecasts -- suggesting that the economy may be moving further away from the Fed’s goals.

Prices rose 1.5 percent from a year earlier in May, as measured by the personal consumption expenditures price index, and employers added 80,000 workers to payrolls in June.

‘Next Step’

“It is very hard to give as rich a sense of that systemic approach to policy in brief statements we issue at the end of each meeting,” Plosser said. A detailed monetary policy report would be a “logical next step” for the FOMC to convey its strategy, he said.

One Fed publication that’s a candidate for an overhaul is the monetary policy report Bernanke presents to Congress twice a year, said Joe Gagnon, a senior fellow at the Peterson Institute for International Economics in Washington.

That report is mostly retrospective and says little new about the outlook for monetary policy. Congress is due to get the report next week.

“It was not meant to create much news,” said Gagnon, who was an associate director at the Fed’s Division of International Finance from 1999 to 2008. “What I would personally love to see is some discussion of how their policies are going to achieve their objectives.”

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