Publishing central bank interest rate forecasts

Over the past two decades, the Federal Reserve has made significant strides toward greater transparency in the conduct of monetary policy. Most recently, last November, Federal Open Market Committee (FOMC) participants—that is, the Federal Reserve Presidents and Governors—started to release their projections for output growth, unemployment, and inflation to the public more frequently and with greater detail than before (Rudebusch 2008). Such transparency can illuminate the FOMC's policy strategies and goals and help inform the public's expectations about future economic developments. Of course, the release of other forward-looking indicators could also be informative. For example, a few central banks release short-term interest rate forecasts along with their economic projections to help guide expectations of future policy. However, the FOMC participants decided against taking this step and will not release the expected policy rate paths that underlie their economic projections (Kohn 2008). This Economic Letter, which draws on Rudebusch and Williams (2006), describes some of the pros and cons of revealing future policy inclinations, including the publication of central bank interest rate forecasts.