SAN FRANCISCO ― Janet Yellen, the Federal Reserve’s influential vice chair, said on Tuesday the U.S. central bank has room to ease monetary policy further, possibly by providing more information on the path of interest rates.
A second top official, Atlanta Federal Reserve Bank President Dennis Lockhart, said he sees a benefit in providing more information on the policy assumptions underlying Fed forecasts. He made clear, however, that he believes the current policy stance is appropriate.
With its usual economic lever of interest rates already pressed close to zero and its balance sheet triple the size of its pre-crisis norm, the central bank has been considering how it can better use communications as a policy tool.
The Fed has been debating for months ways to provide more clarity on when it might eventually tighten monetary policy, although officials have differed on how best to proceed.
Yellen said turmoil in financial markets stemming from both Europe’s banking crisis and general uncertainty about the outlook had increased the risks to the global economy, and that the Fed could offer additional support to U.S. growth.
“The scope remains to provide additional accommodation through enhanced guidance on the path of the federal funds rate or through additional purchases of long-term financial assets,” she told a conference sponsored by the San Francisco Federal Reserve Bank.
A number of communications shifts are being discussed, including a controversial proposal from the Chicago Fed president to allow for temporarily higher inflation. Officials are also considering offering explicit forecasts for the overnight federal funds rate.
The deputy governor of Sweden’s central bank, Lars Svensson, urged the Fed to begin providing forecasts for short-term rates as a way to push borrowing costs lower.
“Publishing a policy-rate path would be the most direct way to affect interest-rate expectations, especially since central banks should have better information about their intentions than anyone else,” he told the San Francisco Fed conference.