Central bank set to change “mid-2013” guidepost on keeping rates low

Jan. 3, 2012, 2:04 p.m. EST

Fed to map out each member’s rate forecast

Central bank set to change “mid-2013” guidepost on keeping rates low

By Greg Robb, MarketWatch

WASHINGTON (MarketWatch) — The Federal Reserve has decided to shift its communication strategy to show the likely path of interest rates, according to minutes of its December 13 meeting released Tuesday.

Starting in January, the Fed will release each Federal Open Market Committee member’s individual forecasts of the appropriate level on the target federal funds rate in the fourth quarter of the current year and the new few years.

At the same time, the Fed will report when each official thinks the Fed will hike rates for the first time.

The shift in the communications strategy is designed to give more clarity to financial markets about when the Fed thinks it will tighten policy.

Fed watchers noted that there have been several instances over the past few years when the markets became convinced prematurely that a rate hike was in the offing. The resulting higher rates served only to dampen the recovery.

The Fed is still working on a statement of longer-run policy goals, the minutes showed. This could include a move to a more informal inflation target.

Federal Reserve Chairman Ben Bernanke encouraged a communications subcommittee to have a new statement ready for the FOMC to consider at its next meeting on Jan. 24-25.

In their discussion of current policy, a number of Fed officials backed more easing steps while only a few objected. The Fed members said they were likely to soon alter language about the central bank keeping rates at ultra-low levels through the middle of 2013.

Financial market uneasiness due to the European debt crisis was seen as a key downside risk to the outlook, the minutes showed.

The Fed staff trimmed its growth outlook due to developments in Europe, the minutes showed.