The Fed meets again next Tuesday and Wednesday, and officials are preparing to roll out a new communications strategy that is on track to include two key elements: their interest-rate projections and a statement explaining their objectives for inflation and employment.
Clarifying the central bank’s objectives could make easier the tasks of deciding whether to buy more bonds and explaining their reasons.
The Fed has purchased more than $2 trillion of securities since the crisis began, part of an effort to spur investment, spending and economic growth to reduce unemployment.
Unemployment is high but has fallen during recent months, a sign that the recovery may be gaining traction.
Some Fed officials are open to more bond buying if the economy doesn’t continue to improve, or if inflation falls much below their objective of about 2%, but they believe the outlook is too murky to move now, and views vary on the costs and benefits.
When they have publicly discussed the subject of asset purchases recently, many Fed officials have tended to hedge, suggesting that they aren’t ready to make the leap.
John Williams, president of the San Francisco Fed, for example, said in a recent interview that he would support such purchases if he was sure of his economic forecast for low inflation, but he doesn’t have great confidence in the forecast yet. “And also there are costs to taking greater policy action. There are always trade-offs that have to be weighed,” he added.
Other officials signaled flexibility on policy. “Now is not a time to lock into a rigid position,” Dennis Lockhart, president of the Atlanta Fed, said in a speech this month at Atlanta’s Rotary Club. Sandra Pianalto, Cleveland Fed president, said in Wooster, Ohio, “Going forward I will continue to weigh the costs and benefits of further policy actions.”
All three of these officials get votes in Fed decisions in 2012 and are likely to move with the consensus at the Fed. All three, to varying degrees, have expressed openness to more purchases but not eagerness to move in that direction quickly.