Fed's Mester: Fed Needs Further Refinements of Forward Guidance

        NEW YORK--Federal Reserve Bank of Cleveland President Loretta Mester said Monday that the U.S. central bank can do more with the words it uses to help guide the public's expectation of where its interest rate policy may be heading.
        Ms. Mester says this so-called "forward guidance" can be honed beyond the various strategies the Fed employed as it tried to provide additional economic stimulus after pegging short-term interest rates at near zero at the end of 2008. Having told the public when it expected it could raise rates and then having emphasized policy will be driven by economic events, Ms. Mester wants to see a new round of refinements.
        "I would like to see the forward guidance evolve over time to give more information about the conditions we systematically assess in calibrating the stance of policy to the economy's actual progress and anticipated progress" toward the Fed's official employment and inflation goals, Ms. Mester said.
        Better guidance "would articulate the considerations the Committee would take into account when determining future changes in policy, as well as information to help the public anticipate how policy is likely to change in response to changes in economic developments that affect the economic outlook," she said.
        Ms. Mester's comments came from the text of a speech prepared for delivery in Paris. The speech is Ms. Mester's first public remarks since last week's rate-setting Federal Open Market Committee meeting. Then, officials dropped a pledge to remain "patient" on the timing of rate rises, moving the central bank closer to the day it will boost borrowing costs.
        Fed officials have signaled the central bank's mid-June policy meeting opens the door to rate rises, but few have been willing to call explicitly for action then. In a recent speech, Ms. Mester said she'd be comfortable with a rate rise in the first half of the year, suggesting she'd be open to acting in June. Ms. Mester had also long wanted to see the "patient" language struck from the Fed statement.
        Ms. Mester's formal remarks had little to say about her outlook for rates and the economy. Most of her speech recounted the Fed's response to the financial crisis and its aftermath, and recounted official policy stances on a number of issues, including how the Fed will raise rates in a world flooded with liquidity, and how it will shrink over time its unprecedentedly large $4.5 trillion balance sheet, loaded with Treasury and mortgage bonds.
        Ms. Mester noted the Fed's "extraordinarily accommodative monetary policy has provided important support to the U.S. economy, helping to promote stronger labor markets and the pickup in growth that underlies my projection of a gradual return of inflation to our 2% goal over time."
        Write to Michael S. Derby at Michael.derby@wsj.com
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        (END) Dow Jones Newswires

        March 23, 2015 05:20 ET (09:20 GMT)

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