Bernanke Opens the Black Box via Businessweek

Federal Reserve Chairman Ben Bernanke is looking rather Swedish these days. Before entering government, Bernanke was a leading academic exponent of inflation targeting as practiced in Sweden, New Zealand, Britain, Canada, and the European Central Bank. It’s a transparent approach to monetary policy that steers interest rates to keep the long-term inflation trend within an announced range. Bernanke set aside his plans for inflation targeting during the financial crisis, when he adopted heroic, ad hoc measures to save the big banks and rescue the global economy.

Now the quiet, circumspect chairman is going back to the commitment to transparency that he developed during his days teaching and researching economics at Princeton University. For the first time ever on Jan. 25, the 17 Federal Reserve governors and bank presidents will state their views on the appropriate course of the federal funds rate, the short-term interest rate that the Fed controls. Those forecasts will be collected and published, albeit without names attached.

“This is Bernanke getting away from the Greenspan model, the oracle, the guru,” says IHS Global Insight (IHS) U.S. Economist Paul Edelstein. In a note to clients, Edelstein called it “a giant step toward enhancing the clarity and transparency of monetary policy.”

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