The Fed Will Publish a Forecast on Rate Moves

The change was approved at the most recent meeting of the Fed’s policy-making committee, in December, but was kept secret until Tuesday afternoon, when the Fed released an account of the meeting after a standard three-week delay.

The inaugural forecast, set for Jan. 25, will show the range of predictions made by Fed officials about the level of short-term interest rates in the fourth quarter of 2012, 2013 and 2014, although it will not list individual predictions.

It also will summarize when they expect to start raising short-term rates, which they have held near zero since late 2008. And it will describe their plans for the Fed’s investment portfolio.

The forecast could reduce borrowing costs for businesses and consumers by convincing investors that the Fed intends to keep rates near zero for longer than expected. But the benefits most likely would be modest, as rates already are very low and already are widely expected to remain near zero into 2014.

A more significant possibility, is that the changes will set the stage for the Fed to announce an expansion of its existing economic aid campaign, for example, by once again increasing its purchases of Treasuries and mortgage-backed securities.

According to the meeting minutes, “a number of members” of the 10-person committee “indicated that current and prospective economic conditions could well warrant additional policy accommodation, but they believed that any additional actions would be more effective if accompanied by enhanced communication.”

This, however, is unlikely to have any broad impact on the economy, because the Fed lacks the power to address the most important issues weighing on growth, including a lack of demand from gloomy consumers, high levels of debt throughout the economy and the depressed condition of the housing market. Stock traders took the Fed’s announcement in stride as indexes continued their rise in the first day of trading in 2012.

The Standard Poor’s 500-stock index closed up 1.6 percent. The Fed’s staff, which prepares an economic forecast noted for its unusual accuracy in an uncertain business, reduced its medium-term outlook for growth, citing the impact of events in Europe, according to the minutes.

“The Fed’s core problem right now is that the parts of the economy through which those interest rate effects would normally get traction are blocked,” said Vincent Reinhart, chief United States economist at Morgan Stanley and a former senior Fed staff official. “It is not clear how effective any of these policies will be.”

The change in communications policy is part of a broader effort by the Fed’s chairman, Ben S. Bernanke, to improve public understanding of the central bank’s goals and methodology. It formalizes a series of experiments with forecasting that the Fed has made in recent years, beginning with its statement in December 2008 that rates would remain near zero “for some time.”

Talking about future policy was a longstanding taboo among central bankers, who worried that investors would treat the predictions as promises and react badly when some predictions inevitably were off base. But the Fed now is casting its lot with the growing camp that regards shaping expectations as a primary tool for monetary policy, and is eager to seize any opportunity.

The forecast will summarize the predictions of the Fed’s five governors — two seats on the board are vacant — and the 12 presidents of its regional banks, only five of whom hold votes on the committee at a given time. It will be included in an existing forecast of economic conditions — the rates of growth, inflation and unemployment — that the Fed publishes four times a year.

In presenting those forecasts, the Fed excludes the three highest and the three lowest estimates submitted by the officials. It then reports the highest and lowest predictions among the remaining 11 forecasts, showing a range that it describes as the “central tendency.”

For example, the forecast published in November, showed the committee expected growth of 2.5 percent to 2.9 percent in 2012.

The Fed also will publish what it described as “qualitative information” regarding the committee’s expectations about the management of the Fed’s balance sheet.

The Fed’s plans for buying or selling assets are, at present, of even greater interest to most investors than the path of short-term interest rates.

Support for the changes was not unanimous, according to the minutes, which said that some “did not see providing policy projections as a useful step at this time.” But no formal vote was recorded. Instead, the minutes reflect that the participants — not just the 10 members with votes — reached a consensus.

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