Transparency Versus Clarity at the Fed

In the Times, a nice story by Binyamin Appelbaum about how confusion and uncertainty about monetary policy persists, despite the Fed's moves towards greater transparency, such as publishing forecasts and holding press conferences (remember: before 1994, the Fed didn't even announce changes in the Fed Funds rate target).

Experts and investors have continued to disagree about the plain meaning of the Fed’s recent policy statements. Some say the increased volume of communication is creating cacophony rather than clarity. Political criticism of the Fed has continued unabated.

I'm not sure the uncertainty regarding the Fed's intentions should be considered a failure of communication.  This is an unusual time for monetary policy, with the financial crisis and "zero lower bound" forcing the Fed to experiment with different policy tools.  To the extent that the Fed's signals are unclear, I suspect that reflects genuine uncertainty within the Fed.

There is also significant degree of genuine disagreement among the members of the FOMC.  While Bernanke's tolerance for expressions of divergent views may enable "cacophony," in forming expectations about future policy it is quite useful to have a sense of the individual members' opinions since decisions will ultimately be made by a committee.

Just like monetary policy itself, the Fed's communication policy should be evaluated relative to a counterfactual (i.e., what would have happened without it).  While we may have a hard time predicting the course of monetary policy now, I think the outside world would be in a state of much deeper confusion if all of the unconventional monetary policy moves over the past several years had been conducted under the older tradition of secretiveness at the Fed.