Federal Reserve Chair Janet Yellen said Tuesday that one of the challenges for the central bank is how its multiple members communicate with the public.
“This really is one of the challenges of our system,” Yellen told a European Central Bank panel in Frankfurt.
“We have a very large committee, 19 people,” she said. “We’ve had a kind of democratization of monetary policy that began really under my predecessor.”
The discussion panel — which also featured central bank chiefs from Japan, the U.K. and the euro zone — focused on how central banks communicate with the public and the markets about what they are doing to ensure price stability. Yellen said that individual speeches from committee members, mainly before a policy decision meeting, can be a hurdle for the Federal Reserve.
“Individuals should be explaining in their speeches, elaborating what’s on the (Fed’s decision) statement and explaining what we have agreed upon. We agreed that having done that, individuals can go out and explain their individual perspectives,” she said.
However, she added: “I would say that guidance hasn’t been totally faithfully followed, although many of my colleagues do try to do that, and the press tends to pick up on differences, (which is) particularly difficult when we have an upcoming policy decision.”
Some members are traditionally more hawkish than others, and they could suggest with their speeches a stronger path to normalization of monetary policy, and vice-versa, creating potentially incorrect expectations for investors, who trade according to the path of monetary policy.
Yellen admitted that it is hard to find a solution to this problem.
“Probably we will never, given our structure and size, be able to deal with this totally effectively,” Yellen told the audience.
“This is a work in progress,” she added.
The Federal Reserve is expected to increase interest rates next month. In October, minutes from the bank’s last policy meeting showed that officials saw the U.S. economy expanding at a steady pace, which increases the chances of another rate hike before the end of the year.
Earlier this month, President Donald Trump selected Fed Governor Jerome Powell to succeed Yellen when her term at the helm expires in February.