Cleveland Fed: 'Vast Majority' of Public Unaware of Fed's New Strategy
September 18 2020 - 6:01PM
Dow Jones News
By Michael S. Derby
If the Federal Reserve wants the public to embrace its new
approach to inflation and monetary policy, it's got a lot of work
to do.
Federal Reserve Bank of Cleveland research released Friday finds
that the move by the central bank late last month, unveiled in a
speech by Fed Chairman Jerome Powell, to shift to a flexible system
of inflation targeting was almost entirely ignored by the broader
public.
"Despite extensive coverage in the news media, Powell's speech
apparently did not reach or register with the vast majority of the
population," the Cleveland Fed report said.
To determine the public's awareness levels, the Cleveland Fed
has been using surveys to track how much information people have
heard and taken in about the Fed. While the survey has been running
since March, the report focused on the Fed's new strategy, in large
part because such moves are rare. The change was important given
the central bank's historic fight to contain inflation, and because
it suggests the central bank will keep rates low well into the
future.
At the end of August, Mr. Powell announced that the Fed would
formally allow inflation to go over its 2% target to make up for
times when it has fallen short of that goal. The Fed built on that
new framework at its rate-setting Federal Open Market Committee
meeting this week. At the meeting, officials held their short-term
target rate steady and said that they would keep their short-term
target rate very low until the job market had reached its maximum
sustainable level and inflation had risen to 2% and was on a path
to moderately overshoot that goal.
Part of the Fed's new strategy is aimed at ensuring the broader
public doesn't expect weaker future inflation, which is a real risk
given low price pressure readings. But the Fed faces a
communications hurdle: While many in the financial sector pay acute
attention to what the central bank says, the broader public
generally pays little attention.
Based on the findings of a daily survey conducted after Mr.
Powell's August speech, "we detect only a very small uptick in the
fraction of the population that reported having heard news about
the Federal Reserve in the days immediately following the
announcement," the report's authors wrote. "This finding suggests
that the announcement did not significantly affect the general
public's perception of monetary policy."
In the survey, most households reported hearing nothing about
the Fed's news at all, and "less than half of the people who heard
Fed-related news after the announcement reported that the news was
about a new strategy by the Federal Reserve."
And there was more bad news for the Fed's communications effort:
"Even for those who heard news about monetary policy following the
announcement, the news had little impact," with respondents not
registering the new inflation strategy at all.
The paper holds out hope that the Fed can get through to people.
"While this announcement may not have had any meaningful effect on
the public's perception of the monetary policy strategy, it does
not rule out the possibility that, when presented directly and
concisely to individuals, information about [average inflation
targeting] could lead households to change their beliefs in a
manner consistent with the theory."
Write to Michael S. Derby at michael.derby@wsj.com
(END) Dow Jones Newswires
September 18, 2020 17:46 ET (21:46 GMT)
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