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Official Urges New Policy on Fed Wording

August 22, 2003|From Bloomberg News

The Federal Reserve must find a better way of explaining its policy actions to the public, Fed Bank of St. Louis President William Poole said Thursday.

The Fed's policymaking Open Market Committee has been roundly criticized for sounding too pessimistic about the economy in an official statement in May, a tone that helped drive long-term bond yields to generational lows in June as investors bet on deep Fed interest rate cuts.

Yields have since rebounded sharply as economic data have improved.

"The appropriate communications goal, in the context of how the economy functions, should be to minimize market uncertainty about monetary policy," Poole said in a speech in Philadelphia.

Current Fed language predicting possible action on interest rates is "probably counterproductive in most circumstances," he said.

Poole's comments were the latest in a public discussion of how central bankers communicate with investors.

Fed Gov. Donald Kohn issued a study June 20 arguing that the Fed should release a detailed analysis of its economic outlook, instead of the standard brief summary, to guide investors.

Poole said the Fed would be better off having a clear, concise pattern in the language it uses. This might include using a limited number of standard phrases and focusing the central bank's statements on explaining actions just taken, not on what the Fed might do later, he said.

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