By Steven K. Beckner

It is not certain that the FOMC will publish a “central tendency,”
but it would be easy — and inevitable — for Fed watchers to calculate
their own central tendency from individual rate projections which seem
likely to be included in the SEP. In the past, beyond the SEP summary
table, the FOMC has published a table showing the full distribution of
participants’ projections for various indicators.

Prior to the Jan. 24-25 meeting the Fed staff will have to decide
precisely how to report the funds rate projections and the timing of
rate changes. The tables are accompanied by an extensive text describing
the diversity of FOMC members’ views, as well as uncertainties
attending the forecast.

It is there that the FOMC could “describe the key factors
underlying those assessments as well as qualitative information
regarding participants’ expectations for the Federal Reserve’s balance
sheet.”

Fed Chairman Ben Bernanke will be giving a press conference at each
of the quarterly FOMC meetings where the SEP is prepared. Past practice
has been to release the summary table before the press conference
begins. The rest of the SEP tables and narrative are only released three
weeks later. The Fed will have to decide how much of the monetary policy
prognostications to release immediately after the FOMC meeting and how
much to hold.

Barclays economist Michael Gapen suggests “the FOMC alter its
current practice and include the distribution of participants’
projections for output, unemployment, inflation, and the funds rate in
its press conference projections materials. Doing so would enable
markets to understand the view of the consensus relative to any
individual FOMC voter.”

Also up in the air is what becomes of the “forward guidance” in the
FOMC’s policy statement. Will a funds rate forecast, the central
tendency of which is likely to show the funds rate staying near zero
through mid-2013 and perhaps beyond, obviate the need for language
explicitly saying that it will? Quite possibly.

The minutes say “several members noted that the reference to
mid-2013 might need to be adjusted before long.” And they add that “a
number of members noted their dissatisfaction with the Committee’s
current approach for communicating its views regarding the appropriate
path for monetary policy, and looked forward to considering possible
enhancements to the Committee’s communications.”

One thing is for sure, observes Lieberman: “the market will be bent
out of shape if the SEP doesn’t show the funds rate remaining flat at
least through mid-2013.”

** Market News International **

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