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Federal Reserve to increase transparency

Scott Tong Dec 12, 2011

Steve Chiotakis: The Federal Reserve has its last meeting of the year tomorrow, and economists and bankers will pour over the Fed’s statements to interpret its opinions and plans. But this week, the Fed is expected to announce a little more transparency, so maybe, a little less pouring?

Marketplace’s Scott Tong is with us live now from our Washington bureau with the latest on that. Good morning Scott.

Scott Tong:Good morning, Steve.

Chotakis: Why is the Fed trying to be more clear about its plans?

Tong: The Federal Reserve is talking about being more upfront about its projections and its targets for short-term interest rates, and its view of the jobs picture, and inflation. Now, why? Well, the idea is to help shape expectations for consumers and businesses trying to plan for what their future borrowing costs might be.

This morning, I spoke to Justin Urquhart Stewart over at 7 investments in London. He goes back to that metaphor of uncharted waters. In times like these, the Fed needs creative tools, like better and clearer communications, to win the public’s trust.

Justin Urquhart Stewart: Yes there’s a hand on the tiller, the tiller’s on a boat, and the boat’s in a storm — but there’s a problem. Unforunately the charts that we had before don’t cover this part of the ocean. So therefore, what they are trying to do is look at other ways in which they can provide some level of direction and steering.

Chotakis: Sometimes what the Federal Reserve does seems like it won’t really impact the broader economy. Could this?

Tong: Well, it could help the markets; in other words,  it could make sure that they don’t freak out the markets — and at a time like this, raise your hand if you want unpredictability and guessing games in investments. There is a risk here though — that the public could see these projections as promises. And then the Fed find it hard to change its mind when the conditions change.

Chotakis: Marketplace’s Scott Tong in Washington. Scott, thanks.

Tong:You’re welcome.

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