In the past decade or so, the Federal Reserve has become substantially more transparent and open in its communication with the public. Growing appreciation of the fact that greater openness makes monetary policy more effective is, I believe, an important reason for this welcome trend.

When [the "measured pace" wording] will change, I don't know...My view is that we will try damn hard to be pretty clear, or as clear as we can be, about what we are up to.

If we tell the markets openly which target we are aiming at and let us be measured by this and whether we stick to it, we will increase the credibility we have achieved over the past 25 years. This would be another logical step on the Fed's path toward transparency.

I generally favor increased transparency and think the benefits of establishing a numerical objective [of inflation] are likely to outweigh the costs.

In hindsight I'd have to admit the fact we were able in our statements to give some [clue] of where policy was headed has turned out to be helpful...up to this point.  It's helped financial markets and others be prepared for, and adjust smoothly, to what we've done so far...It's probably reduced volatility in financial markets around the time of our policy actions.

I think releasing the minutes earlier is one more step in the transparency and openness of the Central Bank. I think it'll take a while before the markets understand the context of the conversation [at the FOMC meeting]. This was the first time. By its very nature, it's going to take a while. But markets learn.

Minutes of FOMC meetings necessarily contain elements of both policy inclination and economic outlook. Benefits flow from a more timely release of a fuller, more nuanced explanation of why the policy decision was made than is possible in an announcement.

Reactions to the minutes could be sizable, as they were last Tuesday, but because the minutes do elaborate on the rationale for the Committee's decisions and outlook, these reactions should help markets anticipate policy actions and price assets in ways that foster economic stability.

Early release of the minutes could have costs if Committee members became more guarded in their discussion out of concern about the effects of their remarks when reported or if, over time, the minutes themselves became less comprehensive. In my view, neither of these developments is an inevitable consequence of the new schedule, and I am sure the Committee will resist any temptation to allow them to occur.

More is not necessarily always better, and at each step of the way central banks have needed to take account of the potential costs as well as the benefits of greater transparency.

What we say is important, but what we do over time will ultimately determine economic outcomes. We should not allow a desire for clarity of expression to deflect our decisions from those that would contribute best to overall economic performance and which may be difficult to explain easily. And we must take care that policy expectations engendered by communication do not unduly constrain policy action. Furthermore, we cannot allow transparency to limit discussion in the Committee out of concern about how its publication will affect markets and the economy.

This increase in transparency is highly welcome, for many reasons. Perhaps most important, as public servants whose decisions affect the lives of every citizen, central bankers have a responsibility to provide the public as much explanation of those decisions as possible, so long as doing so does not compromise the decisionmaking process itself. A more open policymaking process is also likely to lead to better policy decisions, because engagement with an informed public provides central bankers with useful feedback in the form of outside views and analyses.

[O]pen and clear communication by the policy committee--which in practice includes speeches and congressional testimony by FOMC members, as well as official statements--makes monetary policy more effective in at least three distinct ways.

First, in the very short run, clear communication helps to increase the near-term predictability of FOMC rate decisions, which reduces risk and volatility in financial markets and allows for smoother adjustment of the economy to rate changes...

Second, in the long run, communicating the central bank's objectives and policy strategies can help to anchor the public's long-term expectations--most importantly, its expectations of inflation...

The third way in which clear and open communication enhances the effectiveness of monetary policy--the channel that will be the focus of my remarks today--is by helping to align financial-market participants' expectations about the future course of monetary policy more closely with the policy committee's own plans and projections. As I will discuss, to the extent that central bank talk provides useful guidance to markets about the likely future path of short-term interest rates, policymakers will exert greater influence over the longer-term interest rates that most matter for spending decisions. At the same time, expanding the information available to financial-market participants improves the efficiency and accuracy of asset pricing. Both of these factors enhance the effectiveness and precision of monetary policy.

In 2000, the FOMC switched from the “tilt” language to the balance-of-risks language with the explicit intent to avoid signaling future policy actions.  Nevertheless, in August 2003 the Committee added a statement that was intended to give the public some idea of how it believed policy might proceed in the near future.

While the presidents begin the outlook go-around, the order of presentations is otherwise set through what I call the "wink" system. When a Committee member wants to make his presentation, he winks at the deputy secretary, who then puts the member on the list, in the order of the winks. 

I also learned that FOMC meetings are more about structured presentations than discussions and exchanges. This surprised me. Each member spoke for about five minutes, then gave way to the next speaker. Many read from a prepared text or spoke from a de tailed outline, diverging only occasionally to include a comment on what was said earlier in the meeting. To my surprise, what evolved was not a spontaneous discussion, but a series of formal, self-contained presentations. (11) 

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Note 11:  I am told that the presentations used to be more spontaneous and interactive. But this changed once the decision was taken to release the transcripts after five years. Committee members apparently want to make sure that their remarks, when read five years later, will be coherent and graceful. So most would write them down and read them. I quickly fell into the practice of doing the same.