MNI POLICY: Mester Calls for More Dynamic FOMC Statement

By Jean Yung

     WASHINGTON (MNI) - The Federal Reserve's policy statements should give more

detail about the outlook and justify the anticipated policy path, breaking from

a "sparse" and "boilerplate" format, Cleveland Fed President Loretta Mester

said. 

     "The chair's press conference does give more context, but I'd like to see

more of that information in the Committee's statement, to provide more of a

sense of our outlook and why we think our anticipated policy path is

appropriate," Mester said Friday in remarks prepared for a financial conference

in New York. 

     The FOMC should also provide more information on its assessment of risks to

the outlook, Mester said. A longer and more dynamic statement would also allow

the Fed to change words more "productively" without fear of sending the wrong

message to markets. 

     "It would help us escape the statement's 'Hotel California' problem: words

check in but they don't check out," she said. 

     "The market hangs on each word in the statement, so there is a legitimate

reluctance to change any word from one meeting to the next because of the signal

it might send to the market," she said. "If we used more words to explain

things, each word would carry less weight."

     Fed officials should communicate more in situations where the views of

policy makers diverge from markets, she said. 

     "We have to be open to the possibility that the markets' view may be more

in alignment with fundamentals than the policymakers' view," she said.

"Significant misalignment between the central bank's views and market

expectations should also prompt the chair to augment communications in

intermeeting periods and to consider improvements in how the central bank

explains the rationale for its outlook."

--MNI Washington Bureau; +1 202-371-2121; email: jean.yung@marketnews.com

[TOPICS: MMUFE$,M$U$$$,MT$$$$]