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Federal Reserve To Publish Interest-Rate Projections


And today, the Federal Reserve is taking another step in its stated intention to become more transparent. The committee that sets interest rates ends a two-day meeting, and its usual post-meeting announcement will have some unusual information.

For a hint of what we're to learn, we called David Wessel; he's economics editor of the Wall Street Journal. Good morning.

DAVID WESSEL: Good morning.

MONTAGNE: So what is the Fed going to announce today that's so remarkable?

WESSEL: Well, for the past few years, the Fed each quarter has been telling us what each of its 17 current policymakers think will happen to the growth of the economy to unemployment and to inflation. But there's one thing they've kept very close to their vest, and that is the one thing that the Fed actually controls directly: what the Fed officials expect to do with the short-term interest rate, the target rate that sets the rate that cascades through the economy over the next year. Today for the first time, each of them will say where they expect rates will be.

MONTAGNE: And would you know exactly where they're going to tell us rates will be?

WESSEL: Well, the Fed has been keeping this short-term interest rate at zero since December 2008, which is extraordinary. And its told us that it expect rates to remain there at least through the middle of 2013. The betting is that when we see the new information today, that will tell us it's more likely that rates will be at zero through 2014, and more interesting maybe, they're going to tell us in what year do they expect to raise interest rates.

The Fed's hope is that by giving this additional information they'll reassure investors and borrowers and consumers that rates are going to be low for a very long time. The Fed doesn't have an itchy trigger finger, and they hope that'll encourage people to borrow and to investments in bonds and stocks and other things knowing that short-term rates aren't going up.

MONTAGNE: Does that mean this will happen?

WESSEL: No, it's not a commitment. It's not a promise. It's saying, our best estimate of what the economy's going to do leaves us to think this is what we're going to do with interest rates. We are seeing what's going on inside the minds of the Fed officials. But they're going to go out of their way to say that it's not a promise and it's not a commitment.

MONTAGNE: Now, is there a downside to the Fed broadcasting where it plans to keep rates for the next few years?

WESSEL: Well, some Fed officials think so and some analysts on Wall Street think so - for a couple of reasons. One, the public and investors may not understand that the Fed is not making a commitment, and if the Fed changes its mind later because the economy's different, that could cause a backlash. Secondly, they may be limiting their flexibility. Will they be more reluctant to raise interest rates sooner because they've made this statement? And a third risk is that we won't be getting a consensus of the committee, but we will be learning what 17 different officials expect to happen in interest rates. And there's a risk that creates a cacophony; that it confuses people, rather than clarifies things.

MONTAGNE: So how big of a shift is really? Back to whole question of them having in previous years kept this very close to their vests. How much of a change is this for the Fed?

WESSEL: Well, it's part of a continuum of changes. When I started covering the Fed, the Fed didn't even announce when it was moving interest rates. You had to discern that from what it did in the markets. Former Fed Chairman Alan Greenspan prized flexibility, and in order to be flexible he was secretive, he never wanted to say exactly what he's going to do. That allowed him to do whatever he wanted when the time came. Ben Bernanke, the current Fed chairman, is very different. He believes that monetary policy works better when people understand what the Fed is thinking and what it expects. And this is another step in that direction.

MONTAGNE: David Wessel is economics editor of The Wall Street Journal. Thanks, David.

WESSEL: You're welcome. Transcript provided by NPR, Copyright NPR.