AMELIA ISLAND, Florida, May 24 (Reuters) – In nearly 40 years working for and helping lead the Federal Reserve, Cleveland Fed President Loretta Mester was part of a revolution that saw the U.S. central bank offer ever more detailed and plentiful commentary on the economy and monetary policy.
As she heads towards mandatory retirement in June, the Cleveland Fed chief has a parting thought: With the economy in flux following the COVID-19 pandemic and with uncertainty surrounding even basic aspects of how things work, precision may be an enemy.
“Markets certainly want to know exactly … ‘when are you going to cut rates?’ That’s what they focus on,” Mester, 65, said in an interview with Reuters on the sidelines of an Atlanta Fed conference this week. “The public … doesn’t want to hear a whole bunch of complicated stuff. They want to kind of know ‘what do you really think?'”
“We’ve become much more transparent over time,” she said, but “we’re not prescient. We don’t know exactly how things are going to be … If the economy evolves differently than you’re expecting, and materially differently, … your policy should respond to that.”
Given how much is unknown, she said the Fed should build more of that uncertainty into how it talks about policy, focusing less on a baseline or “modal” outlook and more on a handful of the most likely outcomes – or scenarios – that would help the public better focus on how policymakers would react when the economy, as will inevitably happen, does something different than expected.
Source: REUTER
