In practice, the Federal Reserve’s approach was “never explain, but behave predictably.” A close analysis of the FOMC’s past behavior was a good guide to future policy, but it had two shortcomings as a substitute for transparency: First, it gave an advantage to sophisticated players who studied the FOMC’s behavior – something that is arguably inappropriate for a government institution.
Second, while a policy rule such as the one developed by John Taylor explained the course of the federal funds rate much of the time, there were cases when it didn’t and when even the experts failed to correctly anticipate the FOMC’s actions. The trend toward greater transparency accelerated during the early 2000s.