MNI POLICY: Paper Calls for Replacing Fed Dot Plot with Matrix

By Jean Yung

     WASHINGTON (MNI) - The Fed's should simplify its post-meeting statement and

convert the quarterly Summary of Economic Projections into a more detailed

Bank-of-England-style Inflation Report, according to a paper based on a survey

of 24 policy experts to be presented to the FOMC Tuesday.

     The dot plot would be replaced with a matrix that links each FOMC member's

projections for growth, unemployment, inflation and interest rates. That

additional information would help readers answer the question of "whether a

particular FOMC participant projects a relatively high interest rate because

they believe the equilibrium real interest rate is high, because they anticipate

higher inflation and lower unemployment than their colleagues do, or because

they believe in a more aggressive reaction to a shared forecast of these

fundamentals," the paper said.

     Disclosing the name of the FOMC member would also encourage greater

"discipline" and enhance deliberations, the paper said.

     Meanwhile, the FOMC should also simplify its policy statement and meeting

minutes to make them more readable and relevant, the paper said. The statement

could be rewritten in three sections: the policy action and votes for and

against, the rationale for the action, and a discussion of uncertainties and

risks.

     Public comments from Fed officials should also focus more on the rationale

for recent decisions and how policy will react to changing conditions -- "and

less on the likely future path of interest rates," the paper said.

     The paper is written by university economists Stephen Cecchetti and Kermit

Schoenholtz, and based on two dozen interviews with former officials, academics

and market economists.

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

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