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St. Louis Fed’s Musalem urges clearer policy communication

He said markets face more guessing when a central bank keeps its policy framework to itself, and he warned against leaving the public discussion altogether.

Reported · Written up by our desk · Central Banks

St Louis Fed President Alberto Musalem said central bankers do not need to make promises about future interest rates, but they should clearly explain how and why they set monetary policy, according to FXStreet.

Musalem argued that a predictable, communicated policy framework can support policy transmission and help align private expectations with the Fed’s intentions, which he said improves the trade-offs between inflation and employment.

He also cautioned that central banks should not “exit the conversation altogether,” saying keeping the framework private forces market participants to guess at the Fed’s reaction instead of focusing on incoming data.

FXStreet reports Musalem said the framework-based approach is part of what makes central bank decision-making democratically legitimate, noting that delegated power over interest rates obligates the Fed to explain how and why it uses that power.

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