2 All three of these reasons – evidence that U.S. monetary policy is currently only moderately accommodative, the fact that U.S. financial conditions have been influenced by economic and financial market developments abroad, and risk management considerations – argue, at the moment, for caution in raising U.S. short-term interest rates. So, directionally, the movement in investor expectations towards a flatter path for U.S. short-term interest rates seems broadly appropriate. That said, to my eye, market expectations derived from futures prices – which price in about one 25 basis point rate hike through the end of 2017 – appear to be too complacent. If the incoming information validates my view of the outlook, then I believe that U.S. monetary policy will likely need to move at a faster pace than implied by futures prices towards a more neutral posture as the labor market tightens further and U.S. inflation rises. Moreover, market expectations may be putting insufficient weight on the possibility that the economy could outperform our expectations, that financial conditions could ease, or that the risks to growth from Brexit and other international developments could fade away. If such events were to occur, this might necessitate a faster pace of adjustment. For these reasons, I think it is premature to rule out further monetary policy tightening this year. As I said before, it depends on the data, broadly defined, and, as we all know, that is not something one can predict with any accuracy.
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.