Central banks have adopted different approaches to this challenge, even as there has been broad convergence toward the model of independent central banks, with explicit mandates that include price stability and greater disclosure and transparency. The central banks that publish quantitative forecasts for growth and inflation now typically show the confidence bands around their forecasts. In some cases, these forecasts use, as a conditioning assumption, financial market expectations for the path of short-term interest rates. In others, the central bank publishes a forecast that includes the central bank's assessment at that time of the likely path of monetary policy over some horizon. In the former case, the implications of the forecast for monetary policy are left implicit. In the latter case, the likely path of monetary policy is made explicit, but that path is heavily qualified or conditioned to make it clear that that expected path of short-term interest rates will change as conditions change. The FOMC's approach to communication differs in interesting and important ways from these other models. Although the Committee has introduced a gradual but marked increase in the degree of communication over the past two decades, it provides information about its forecast in quantitative terms less frequently and with less detail than has become typical of many other central banks.
But the rapid growth in the market sectors of emerging and developing economies may also contribute to more rapid growth in global demand and inflation pressures. This changing configuration of world markets complicates the task of forecasting inflation and output within national economies. Energy prices have surprised us over the past few years, in terms of the extent of the rise in prices, the increase in volatility, and the limited negative effects to date on global economic growth. Our capacity to project future energy prices has proven to be very limited, as has our ability to convincingly ascertain the extent to which temporary supply factors, rather than an unrecognized strength in global demand, accounts for the energy price trajectory we've witnessed recently. The consequences of these limits to our knowledge may be even greater given the extent of the price increases already experienced. 2  BIS Review 54/2006  The unprecedented level of the U.S. current account deficit and dramatic rise in U.S. indebtedness adds to the normal degree of uncertainty that surrounds any medium-term forecast because of the dynamics that could accompany the path to a more sustainable pattern of capital flows. The process of adjustment that appears to be underway in the U.S. housing market, occurring as it is after a sustained and very substantial decline in the household savings rate, provides more than the usual challenge in predicting the future strength of consumer spending.