Randomly Noted

The Federal Reserve has a committee studying how to improve communications with the public. But change was not in evidence in the latest statement issued today following the rate-setting meeting of the central bank.

In a bid to be more open with investors and the general public, the Fed should adopt a less stilted post-meeting announcement of its rate decision. Sure, each word the Fed utters must be carefully chosen because each word will be subject to over-the-top analysis by market types and analysts. But still, the Fed should indicate it doesn’t live in a cave.

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This may be a case of  over-the-top tea-leaf reading.

So, by definition, it will be convoluted. But here goes. My interpretation of some comments made today byFederal Reserve Vice Chair Janet L. Yellen indicates the central bank will feel no rush to remove the famous “extended period” language from its post-meeting statements.

The reason for that, essentially, is that Yellen thinks the Fed’s conditionality around that phrase has been sufficient to allow market participants to change their views about when the central bank may finally come off its long-standing emergency easy policy, which features zero short-term interest rates. Said another way, the phrase “extended period” is flexible.

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Watch the money supply.

That much-neglected-in-recent-years indicator of economic activity might come at least temporarily back into vogue as a way to gauge what the Federal Reserve thinks of the pace of progress of the U.S. economy.

That’s a bit of tea leaf reading from the minutes of the Dec. 14 meeting of the Federal Reserve’s policy setting Open Market Committee, released today after the usual lag. Before we delve further and broaden out the concept above with a quote from the minutes, we’ll make this assertion:

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In a development that might seem mundane, but would have been unimaginable not all that long ago, the Federal Reserve talked about the chairman hosting press conferences.

The once secretive central bank has come to this, the possibility that Chairman Ben Bernanke would expose himself to the hurly burly of questions from members of the media.  It was in the working life of this columnist that even changes in Federal Reserve monetary policy weren’t publicly announced. They were divined from market activity.

If Bernanke press conferences became a reality, some questions would be pointed. Some would be uninformed. The answers likely would stay obscure to most citizens.

Still, it’s a great idea.

There’s no guarantee the Fed will get there. In meeting minutes released Tuesday, the topic of press briefings was referenced. The subject was addressed in a video conference of Fed policy makers on Oct. 15.

All the minutes say is this: “Participants discussed whether it might be useful for the Chairman to hold occasional presss briefings to provide more detailed information to the public regarding the Committee’s assessment of the outlook and its policy decisionmaking than is included in (the) Committee’s short post-meeting statements.”

The Committeee is the rate-setting Federal Open Market Committee.

This special Oct. 15 video conference was described in a phrase that would make any corporate bureaucrat proud. There was no chance for that meeting to fail to accomplish. Communications issues and the pros and cons of setting a target for a term interest rate were discussed. The quote is this: “The agenda did not contemplate any policy decisions and none were taken.”

Back to the press conference idea. They should be more frequent than simply occasional, the theoretical time frame mentioned in the minutes. The Fed is a mystery to most people. Some think such economic power in the hands of independent and unelected officials is out of step with democratic institutions. Bernanke press conferences would help demystify the Fed and make it more democratic.

Like it or not, The Fed and its policies already are fodder in the political arena. The latest bond-buying plan to stimulate the economy earned the ire of a number of Republican lawmakers. In the run-up to new financial services regulation, a Democrat-controlled Congress mulled clipping the Fed’s regulatory wings and threatened its monetary policy independence. Nothing ultimaately happened there (the Fed got increased regulatory powers).

But clearly, there have been politics surrounding the Fed on both sides of the aisle.

Press conferences could help by increasing the Fed’s standing with the public, or some interested portion of it. If you wind up in Rome, do as the Romans do. Find a lectern and state your case. Take on the questions and defend your positions. Get your sound bites distributed far and wide.

Bernanke and his like-minded colleagues have mounted a decent defense of the $600 billion Treasury securities buying plan through public appearances and in speech texts. Adding press conferences makes sense as a next step.

This is a big roll of the dice.

The U.S. Federal Reserve, at a time of too-slow economic growth but no longer of systemic emergency, voted today to add at least $600 billion more to the financial system in the next eight months to spur economic growth.

This second round of quantitative easing since the height of the credit crisis in 2008 was widely expected in markets, but that should not minimize the great significance of this move at this time.

This coming move was contentious inside the Fed and greeted with skepticism by many economists outside the Fed. The policy setting Federal Open Market Committee voted 10-1 for QE2. That serial dissenter, Thomas M. Hoenig, president of the Federal Reserve Bank of Kansas City, was the only one to publicly stand against. But other Fed officials have publicly expressed doubts. Not all currently vote on the FOMC.

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Reading the minutes of the rate-setting Federal Open Market Committee’s meeting of Aug. 10, one is struck by the two uses of the word “anticipated.”

In both cases, the minutes, released today, talk of anticipations by Federal Reserve policymakers that were not being met. Both those thwarted anticipations are on the downside for the recovery and the resumption of more usual economic conditions in the U.S.

Example one: “members generally judged that the economic outlook had softened somewhat more than they had anticipated, particularly for the near term, and saw increased downside risks to the outlook for both growth and inflation.”

Example two, which follows shortly afterwards. “Members generally saw both employment and inflation as likely to fall short of levels consistent with the dual mandate for longer than had been anticipated.”

The dual mandate is to maximize employment andto keep inflation under control. Ususally that means keeping inflation from rising. Now, the tougher concern is that the inflation rate is too low.

It’s the minimalist Federal Reserve.

With a tad of old-fashioned ‘white out,’ the U.S. central bank could have taken its statement issued at the conclusion of its March 16 policy meeting and re-issued it today to mark the end of its latest interest-rate confab.

Even Thomas M. Hoenig, the honorable dissenter on the Federal Open Market Committee, if left to repeat his solitary stand meeting after meeting.

Hoenig, the president of the Federal Reserve Bank of Kansas City, doesn’t want much, just for the Fed to abandon its phrase that near-zero short-term interest rates will be kept in place for an “extended period.”

Hoenig’s understandable view, in my paraphrase:  the economy is recovering, if slowly, so why use language that would seem to lock you into a longish-term commitment to emergency low rates?

Take away that “extended period” language and you would let people know that at some point you will return to merely easy monetary policy.

But the rest of the FOMC voters see no reason to shut off Groundhog Day. After all, they said (again) that “inflation is likely to be subdued for some time.”

The Fed seems to have a pretty good read on the economy. Slightly better today than in mid-March but far from out of the woods. Today, the labor market is said to be “beginning to improve.” In March it was “stabilizing.”

“Housing starts have edged up but remain at a depressed level.” In March, “housing starts have been flat.” 

The key fact seems to be that “employers remain reluctant to add to payrolls,” in the words of the Fed. That hasn’t changed and will likely only change to the upside very slowly in the months ahead.

That crucial indicator, and its molasses-like improvement, will keep the Fed’s statement writers nearly idle for the next few meetings. Nothing much will need to be changed.

An interesting tidbit in the just-released minutes of the mid-March meeting of the Federal Reserve’s policy making group reinforces the notion that central bank thinking about asset bubbles is changing.

The minutes contain this quote about officials of the Federal Open Market Committee: “Members noted the importance of continued close monitoring of financial markets and institutions – including asset prices, levels of leverage, and underwriting standards – to help identify significant financial imbalances at an early stage.”

True, the Fed uses the word imbalances rather than bubbles and the list of what could go wrong and bears watching includes more than just asset prices.

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The Federal Reserve delivered no surprises for the holidays, tampering little with a policy statement issued six weeks back, save for carefully chosen words of greater praise for the emerging U.S. economic recovery.

This was what was expected and, although disappointing, what was delivered at the end of a two-day monetary policy meeting.

I continued to hope for the merest hint that zero rates can’t go on forever. That would have been achieved by altering or eliminating the “extended period” phrasing to describe current policy. But it stood unmolested.

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At the late September meeting of the Federal Reserve’s rate-setting policymakers, a couple of pillars of central bank faith seemed to have at least been questioned by the gathered officials.

Or so imply the minutes of that meeting, released earlier this week.

Let’s start with the concept of slack. Slack, in simplistic terms, is unused human, material and industrial capacity in an economy. In a downturn such as the one we struggled through and may be emerging from, idled capacity is an unwelcome reality. People are out of work and production goes quiet.

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