I have argued in my book on globalization (in Polish) that the central banking profession in XXI century will be very different from XX century. Communication will play a much bigger role than before. Every month brings more examples supporting this view. Take a look at todays FOMC statment and compare to October statement, I bolded added parts.

  • December 12, 2006

The Federal Open Market Committee decided today to keep its target for the federal funds rate at 5-1/4 percent.

Economic growth has slowed over the course of the year, partly reflecting a substantial cooling of the housing market. Although recent indicators have been mixed, the economy seems likely to expand at a moderate pace on balance over coming quarters.

Readings on core inflation have been elevated, and the high level of resource utilization has the potential to sustain inflation pressures. However, inflation pressures seem likely to moderate over time, reflecting reduced impetus from energy prices, contained inflation expectations, and the cumulative effects of monetary policy actions and other factors restraining aggregate demand.

Nonetheless, the Committee judges that some inflation risks remain. The extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.

  • October 26, 2006

The Federal Open Market Committee decided today to keep its target for the federal funds rate at 5-1/4 percent.

Economic growth has slowed over the course of the year, partly reflecting a cooling of the housing market. Going forward, the economy seems likely to expand at a moderate pace.

Readings on core inflation have been elevated, and the high level of resource utilization has the potential to sustain inflation pressures. However, inflation pressures seem likely to moderate over time, reflecting reduced impetus from energy prices, contained inflation expectations, and the cumulative effects of monetary policy actions and other factors restraining aggregate demand.

Nonetheless, the Committee judges that some inflation risks remain. The extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.

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Tomorrow you will be able to enjoy hundreds of educated explanations, where analysts will be telling their clients what Federal Reserve wanted to say about the future monetary policy by adding word “substantial” to the statement. Lars Svensson thinks that Fed should adopt fan charts for future interest rates which should be a more transparent way of guiding financial markets expectations, while Petra Geraats wrote a paper showing that central bank mumbling may be optimal. The judgment is out on what is the optimal way to convey monetary policymakers intentions to the markets, although my own preference is for transparency, and I am positive that central banks of Norway and New Zealand will soon find followers.