Transparency is a current FOMC cause
But it reminds me too much of sausages and laws
I think translucence, like my shower door,
Is a good compromise
It lets in the light, but keeps out the flies.
Back in the day, I tended to drag my feet on new measures of transparency since I thought too much transparency would cost too much in reduced freedom of action. I lost those debates and the FOMC has since moved toward even greater transparency today. In fact, there was some indication that they would announce more complete communication after today’s meeting. Thankfully, that didn’t happen, but it is still expected soon.
At this time the peek into the temple that troubles me the most is the statement, repeated in today’s announcement, that
“economic conditions . . . are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.”
Mid-2013 is a year and a half from now and it was closer to two years when that “promise” was first made. I understand that Chairman Bernanke uses such announcements as an instrument of policy separate and apart from the actions taken to implement the policy. However, that is simply too far in advance to anticipate the degree of ease likely to be needed.
I think the Fed has done a good job dealing with our financial crisis and its aftermath, and I wish the ECB would follow its lead before Europe pulls us all back into the soup. However, I think it’s time to allow the federal funds rate to rise to around one percent pretty soon and perhaps a bit more after that. I don’t see that necessarily as a significant tightening of monetary policy if they also keep an eye on the balance sheet and money growth.
I believe that “financial repression” is the term of art for the burden that low interest rates are placing on savers. Low interest rates to stimulate spending in a recession have always had a negative side, namely, the lowering of the return to savers. Policymakers have recognized that aspect of their policies but have always believed that the greater good is served despite the hardship to some. Partly that’s because the period of financial repression has been limited. Not so, now, as the low rates have already lasted for years (plural) and another year and a half is promised, or should I say threatened.
Again, I’m not advocating tightening monetary policy but adjusting the policy mix to spread the burden more evenly. The current level of transparency makes that more difficult than it should be.