Bernanke says central banks should 'avoid overreacting' to economic news - Right, Ben. You're the one for talking about that!
Friday, October 19, 2007 10:01:00 AM
WASHINGTON (Thomson Financial) - Uncertainty about the economy itself and about how the public sees it 'is a pervasive feature of monetary policy making,' Federal Reserve Chairman Ben Bernanke said today.
Because the public is uncertain and has to learn about the economy, there is 'reason for the central bank to strive for predictability and transparency, and avoid overreacting to current economic information,' he said.
Bernanke was speaking in a video-conference to a monetary policy conference at the St. Louis Federal Reserve Bank. He did not talk about the current state of the economy or monetary policy in the text released to reporters.
Making 'real-time assessments' of what is a sustainable, non-inflationary level of economic growth and employment is a 'formidable challenge,' Bernanke said.
Not least because the economic statistics on which the Fed has to rely are at best, 'incomplete snapshots of various aspects of the economy, and even then they may be released with a substantial lag and revised later'. (you mean like the job report you based a 50bps cut off of?
A number of Fed officials have made that point in discussing the decision to cut interest rates on Sept 18, emphasizing the unusually high degree of uncertainty caused by the financial market turmoil and the outdated nature of even recent economic data.
The result, said Bernanke in his review of academic research on monetary policy, is that 'uncertainty about the effect of policy on the economy may imply that policy should respond more cautiously to shocks than would be the case if this uncertainty did not exist'.
Public and market expectations about inflation and monetary policy are also difficult to assess but crucial to policymaking, Bernanke said. For that reason 'central bank communications is a key component of monetary policy; in a world of uncertainty, informing the public about the central bank's objectives, plans and outlook can affect behaviour and macroeconomic outcomes,' he said.
dennis.moore@thomson.com
Friday, October 19, 2007 10:01:00 AM
WASHINGTON (Thomson Financial) - Uncertainty about the economy itself and about how the public sees it 'is a pervasive feature of monetary policy making,' Federal Reserve Chairman Ben Bernanke said today.
Because the public is uncertain and has to learn about the economy, there is 'reason for the central bank to strive for predictability and transparency, and avoid overreacting to current economic information,' he said.
Bernanke was speaking in a video-conference to a monetary policy conference at the St. Louis Federal Reserve Bank. He did not talk about the current state of the economy or monetary policy in the text released to reporters.
Making 'real-time assessments' of what is a sustainable, non-inflationary level of economic growth and employment is a 'formidable challenge,' Bernanke said.
Not least because the economic statistics on which the Fed has to rely are at best, 'incomplete snapshots of various aspects of the economy, and even then they may be released with a substantial lag and revised later'. (you mean like the job report you based a 50bps cut off of?
A number of Fed officials have made that point in discussing the decision to cut interest rates on Sept 18, emphasizing the unusually high degree of uncertainty caused by the financial market turmoil and the outdated nature of even recent economic data.
The result, said Bernanke in his review of academic research on monetary policy, is that 'uncertainty about the effect of policy on the economy may imply that policy should respond more cautiously to shocks than would be the case if this uncertainty did not exist'.
Public and market expectations about inflation and monetary policy are also difficult to assess but crucial to policymaking, Bernanke said. For that reason 'central bank communications is a key component of monetary policy; in a world of uncertainty, informing the public about the central bank's objectives, plans and outlook can affect behaviour and macroeconomic outcomes,' he said.
dennis.moore@thomson.com
