No, I’ve got plenty of questions here. Anyway, I, too, appreciated the range of staff material that went into the preparation for this discussion. An awful lot of alternatives are on the table, and I think it’s good that we’ve been asked to focus on eight questions to try to clarify things. But from my view, the most important question was not posed, and Vince lightly passed over it. Yes, thirty years ago or so we fell into the process that we now use for both creating forecasts and communicating them, and yes, you could assume that anything you’ve done for thirty years probably could be improved. I think that’s possible. But I’d like to have some sense of what is wrong about what we’re doing before I seek major changes to improve it.
The staff paper suggests that in deciding whether or how to change the way we communicate our forecasts, we ought to be looking at goals of better economic performance and better public discourse and accountability, presumably not just in the short run but also in the long run. There’s some marriage there with the potential for setting long-term, explicit price stability targets. A third goal would be better internal discourse and trying to do all of that in the context of having somewhat efficient operations. I think these are laudable goals. I continue to have concerns about whether explicit long-term targets for price stability are really helpful—whether they’ll help or hinder our cause. But setting that aside, I think we need to think about our forecasts not just as forecasts but in light of the full range of communications in which the Committee now engages. We have two Monetary Policy Reports a year. We have the central tendency of member forecasts around GDP, inflation, and unemployment. They don’t get a lot of attention right now. Maybe that’s good in some perspectives, given the way we do them. Maybe that’s not so good. We have eight meeting statements. We have eight sets of minutes, and we have copious speeches and testimony. So there is a lot of communication, whether it’s in numerical form or qualitative form, about how we see the future. Each set of minutes has implicit in it a qualitative discussion and some quantitative information from the Greenbook forecast and an indication of where the members of the Committee are in terms of how they see the future unwinding. We certainly, of course, express that a lot in our speeches and testimony.
In my almost thirteen-year tenure on the Committee the transparency of policy deliberation has increased enormously. There’s a healthy public discourse about what we’ve done, what we’ve said about it, and what the likely future course of monetary policy is. In the end, I think accountability really depends on actions, not so much on words, and I believe our actions and our words have shown us to be accountable. So I’m questioning whether some of this moves us to be more accountable. In fact, if you look over the past twenty-five years at the range of our current forecasts, albeit they have potential problems and they receive little attention, that range hasn’t been at all bad in predicting what has actually happened over the period for which the projections are made, particularly when you look at inflation and unemployment. So despite our lack of common assumptions and with the wide variety of differences, particularly over the years, in how we view the mechanics of the economy, we have published a central tendency that’s been fairly narrow and reasonably accurate, at least for the things over which we have the most control—in particular, inflation. Will more communication of forecasts result in better economic performance? I think that’s hard to prove. The staff has said it’s hard to prove. Maybe yes; maybe no.
Turning to the objective of better internal discourse, more communication has already improved the internal discourse of the Committee. I have some qualms about referring to our nineteen-person editing sessions as an improvement, but setting that aside, we have moved over the years from saying nothing to formulaic statements to more-flexible language combined with earlier release of the minutes. So I think that has all improved our internal discourse. Vice Chairman Geithner circulated something that implied we might further improve by sharing among ourselves more detail about our internal forecasts and the attendant uncertainties. I like that as an improvement on the internal discourse part of it. I think it has some merits for further discussion as long as the intent is strictly internal consumption and there’s no intention to force us to a common view. So I am a bit at odds with President Lacker, and you’ll see more of that.
Can we do more than we’re currently doing? That’s the question here. Of course, it’s always possible to improve. But I think there are downside risks, and I don’t think they were well discussed or articulated, or articulated in a way I would like, in some of the material. First of all, the Committee is intended to be just that—a gathering of independent perspectives on policy. That’s why we have our own staffs. Our economic frameworks have converged over time, but there are differences in focus and in emphasis. If in the end we produce a single view rather than a range, what does that say about the need for a Committee, particularly with nineteen members? If there is a single, consolidated forecast that is, for efficiency’s sake, delegated to a small group, does that not over time tend to disenfranchise those who are not part of that group? Second, Committee members in my view should be chosen for their judgment, not their forecasting ability. Forecasts are useful tools, but they’re not the only things involved in policy. If they were, we could rely solely on a model to set policy, and we know we can’t do that. At some point, the effort involved in creating and refining forecasts over and over precludes the work necessary to form judgments about the current and the future stance of policy. Third, attempts to convey to the public the underlying elements of a forecast, including the policy path, run the real risk, as the staff has pointed out, of committing the Committee to a particular action. At the tails of the distribution of economic scenarios—that is, if things are particularly lopsided from either a growth or an inflation perspective or if there’s a bout of financial instability—some form of path commitment can be useful, and we have used that in the recent past. Normally policy is more reactive to incoming data than proactive, and appropriately so, in my view. The staff papers say pre-commitment is not a problem elsewhere or can be explained away. But the process of conveying such explanations in the context of U.S. financial markets may take more time and be bumpier than anyone expects. Again, I ask myself what greater good would be served by risking that market reaction. Finally, if we did decide to move to more-frequent forecasts, whether centralized or not, would the result be cacophony? We’ve got statements and minutes eight times a year, the usual plethora of speeches and testimony. If we added to that more monetary policy type reports with forecasts, is there a chance that we could have too much information out there, too many things that are potentially giving rise to commentary that’s not necessarily helping understanding but rather confusing it?
So I come back to my answer to the first question that Vince should have asked, I think. I have serious misgivings about whether changing what we now do in the Monetary Policy Reports and the related forecasts might be beneficial enough to offset the downside risks. I think there is, however, some value in talking about something along the lines that Vice Chairman Geithner has implicitly proposed.
Now, let me just quickly answer the eight questions that Vince did raise. First of all, I think a joint forecast should be avoided. A survey of individual member forecasts is my preference. I would aggregate them and present a central tendency either using existing procedures or some modification that seems useful. I would not require that Committee members use common assumptions either for the fed funds path or for other elements. In my experience, I’ve taken some comfort that different Committee members with different assumptions and policy preferences most often develop semiannual forecasts for the next year and a half or so that are not much different from my own. I don’t believe that we in Boston have the best take on how the economy works or how near-term risks will play out, but the fact that the way we see the near-term outcome with “appropriate policy” is in the mainstream of the way most others see it gives me some confidence that we’re on the right track. As I noted before, the range of our forecasts hasn’t been a bad predictor of key economic outcomes.
The third question has to do with whether the forecast should be accompanied by a minutes- style description. The release of our forecast is now accompanied by the Monetary Policy Report, which by definition is the Chairman’s view of things. As a result, of necessity perhaps, the forecasts we develop get little attention in the report. If we were to release forecasts more often, we would need some verbal text like the Monetary Policy Report. But perhaps we could take a first step by just changing the way the Monetary Policy Report is formulated right now to give a little bit more attention to the forecasts that the Committee is making. Whether that means that the Monetary Policy Report is a Committee report, not the Chairman’s report, is an obvious next question, and I don’t have the answer to that. But maybe a small step to take would be to highlight more that the report has forecasts in there.
The fourth question was whether the Committee should jointly agree on the minutes-style description. Frankly, I’m wondering when we would do all this stuff. We’ve got a meeting in January and February that comes out with minutes and a forecast and a Monetary Policy Report. We’ve got a meeting in March. We’ve got one in May. We’ve got June, which is similar to January, a meeting in August, one in September, one in November and December for which we’re writing minutes—all of which, as I noted before, have implicit in them either qualitative or quantitative senses of both the Greenbook forecast and the Committee members’ forecast. That implies that April and October are the only months in which we could probably do this. I think trying to create—and someone referred to this earlier—a minutes-like description of a set of forecasts without a meeting around that set of forecasts would be really hard. There may be some way of rearranging our meeting dates to get the dates to work out better. However, it seems as though we’d be working on a lot of stuff, some of it simultaneously if we were to keep the same range of things that we do now. So my answer to question 5 is that I’m not convinced that the two times a year we do it right now isn’t about the right frequency.
On question 6, I understand the argument for a longer-term forecast period. I understand that it reveals future policy preferences and tradeoffs, but I don’t think long-term forecasts provide a whole lot else. A long-term forecast isn’t going to be realized. It’s more a goal than anything else. It’s hard to make forecasts six months out that are right on the mark, let alone several years out, and they could imply that we know more or control more than we actually do over a longer period of time. So if we were going to extend the horizon, I would extend it only a little—to go, for example, from a year and a half to two or three years perhaps. I would stay with the number of variables we currently forecast—nominal and real GDP, unemployment, and some measure of inflation.
Finally, I think that conveying that we’re not certain about our forecast is obviously desirable. I know other central banks have used fan charts. They’ve proven useful. I know they’ve been accepted. I don’t know how well they’re understood. But I do find myself wondering in the U.S. context what the average person or the average congressman would actually take out of them. Even over rather short periods of time, the range of outcomes about which we’re certain even at the 70 percent level really is kind of wide. So my view is that a qualitative discussion of the sources of risk is preferable to a quantitative one. Over time anything can be well understood, I suppose, but I have a feeling that the range of uncertainty without an academic understanding of what you’re trying to do is more confusing rather than less.
So to pull it all together, I’m intrigued by Vice Chairman Geithner’s implicit proposal of improving internal discussion with more detail about our own forecasts and what the constraining factors are and where we see policy going. I would not try to pull them together into a consensus view. If we had a consensus view, we would have to tell people about it, and I’d be a little concerned about that in terms of commitment. I also think that we could work on how our current forecasts are actually handled in the Monetary Policy Report. I do not think a central forecast is useful: It has problems in terms of what it says about the Committee and the Committee members. I’m not convinced that common forecast variables or a path of forecasts is useful. I’m not convinced that you can actually handle a more frequent release of forecasts to the public, and I think an explicit numerical discussion of uncertainty is difficult. So that’s where I am, for what it’s worth.