One of the things that changed in 1979, of course, was the leadership of the Fed. The actions of Paul Volcker and his colleagues on the FOMC in the years that followed brought an end to the “great inflation” and changed the history of U.S. monetary policy. The Fed was aided in meeting this challenge by the greater public awareness of the costs of high inflation and by a substantial improvement in knowledge among policymakers and academics about inflation dynamics and how monetary policy can be best directed at achieving the objectives of sustainable growth and price stability. But the achievements of the 1980s in delivering substantially lower rates of inflation were principally achievements of the Fed. And good monetary policy decisions under the leadership of Alan Greenspan seem to deserve a substantial part of the credit for the remarkable record of economic performance that the U.S. economy has been able to sustain since. Although the legal framework of the U.S. central bank has not changed since 1978, the conduct of monetary policy and the way the Fed communicates about monetary policy has changed considerably. A few of the most important changes are worth noting. In 1994, the FOMC began for the first time to publicly announce the target for the Fed funds rate and to explain the basis for any change in the target. Prior to 1994, the market was left to discern the Fed’s operating target from the signals conveyed by open market operations.
In 1999, the Fed adapted its post-meeting statement to communicate more information about the outlook for the economy and the implications for monetary policy by disclosing a so-called bias. In December 2004, the FOMC decided to advance the release of the minutes to a date three weeks after the meeting, and in doing so provided a more timely picture of the FOMC’s rationale for its decision, its view of the economic outlook and the implications for monetary policy going forward. In January 2005, the FOMC added a year to its semiannual public forecast of the outlook for growth and inflation, and by extending the horizon the forecast, provided greater insight into the inflation preferences of members of the committee. These changes in the transparency of the conduct of U.S. monetary policy have been motivated by a judgment that monetary policy works more effectively if the central bank is more explicit about its objectives, about its view of the outlook for growth and inflation, and about the framework it uses to make policy choices. Since monetary policy operates through its effects not just on the overnight inter-bank rate but on expectation about the future path of that rate and other asset prices, greater disclosure about the Fed’s forecast and the rationale for its decisions should help financial market prices reflect more accurately the future stance of monetary policy and make monetary policy more effective.