With respect to communication, in recent years the Federal Reserve has shifted towards much greater transparency. This includes quarterly press conferences by the Fed chair following FOMC meetings; publishing growth, inflation and short-term interest rate forecasts of FOMC participants on a quarterly basis; and a concerted effort to lay out the guideposts that the FOMC will look at in assessing progress towards our dual mandate objectives. On the communication front, although we have come a long way, I would admit that there is still room for further improvement. For example, the focus of the SEP on the each participant’s modal forecast does not convey how much uncertainty there is about the economic outlook. Similarly, language used in FOMC statements can become stale over time. We tend to make relatively few changes to the statement language each meeting because of the acute market sensitivity to such changes. One could argue that this might not be the best practice to follow, but we should recognize that there would also be significant transition costs if we were to make more extensive revisions to the statement at each meeting. 6  BIS central bankers’ speeches  For monetary policy to be effective, it is important to have clarity about what the FOMC can be clear and consistent about – its manner of responses to mitigate the potential harmful effects of disturbances and the goals of policy. In contrast, our monetary policy projections and the actions we take cannot be static.
Understanding these interactions is essential in assessing whether inflationary pressures are likely to prove persistent and thus calibrating the appropriate monetary policy response. On the basis of current futures prices, wholesale natural gas prices may stabilise or even fall somewhat in the coming months – indeed, that is precisely what we have seen in recent weeks. This will have a mechanical moderating effect on headline inflation from the middle of next year, as the MPC has anticipated in its latest forecasts. But, to the extent that the level of imported gas prices remains significantly higher than in the past – which is also foreseen in futures markets – then the threat of second round effects that sustain inflation at above target rates may well remain, as domestic firms and households try to resist the squeeze on their real incomes and spending power. That threat will be more acute to the extent that domestic firms and workers seek to protect the real value of their profits and earnings in the face of higher – even if no longer rising – imported energy prices. And – other things equal – the ability to firms and workers to protect their real incomes will be greater when corporate pricing power is stronger and labour markets are tighter.