The new tell-all Fed

That is the new NYT piece by my long-time friend and associate Randall Kroszner, excerpt:

Under Mr. Bernanke, lips have loosened rapidly with quarterly news conferences, forecasts by F.O.M.C. members of key economic indicators, countless testimonies before Congress and, now, the explicit adoption of a 2 percent inflation goal.

The advantage of such glasnost is that it can give the Fed greater bang for its buck. Buying more government bonds may bring down interest rates today, but getting people to believe that the Fed will continue such “accommodative” policies adds to the potency of its actions in two ways: expectations of future borrowing costs stay low, and uncertainty about future monetary policy (and hence, future borrowing costs) declines. Such knowledge lets firms be more confident about investing and hiring, and gives homeowners and potential home buyers more faith that mortgages will stay affordable, providing support for the housing market.