Chairman Ben S. Bernanke
At the Cato Institute 25th Annual Monetary Conference, Washington, D.C.
November 14, 2007
Federal Reserve Communications
The more fully the public understands what the function of the Federal Reserve System is, and on what grounds its
policies and actions are based, the simpler and easier will be the problems of credit administration in the U.S.
– Federal Reserve Board, Annual Report, 1923, p. 95.
Montagu Norman, the Governor of the Bank of England from 1921 to 1944, reputedly took as his personal motto, "Never explain,
Norman's aphorism exemplified how he and many of his contemporaries viewed the making of monetary policy--as an
arcane and esoteric art, best practiced out of public view.
Many central bankers of Norman's time (and, indeed, well into the postwar
period) believed that a certain mystique attached to their activities and that allowing the public a glimpse of the inner workings would
only usurp the prerogatives of insiders and reduce, if not grievously damage, the effectiveness of policy.
Norman's perspective on central banking now seems decidedly quaint.
Over the past few decades, central banks around the world have
worked assiduously to become more open about their activities.
In fact, Norman's own institution, the Bank of England, has in recent
years been a leading exponent of increased transparency in central banking.
Monetary policy makers have adopted a range of methods
to improve their communication with the public, including timely announcements of policy actions, expanded testimony before
members of the legislature, the release of minutes of policy meetings, frequent public speeches, and the regular publication of reports
about the economy and monetary policy.
This increased openness is a welcome development for several reasons.
monetary policy makers are public servants whose decisions affect the life of every citizen; consequently, in a democratic society, they
have a responsibility to give the people and their elected representatives a full and compelling rationale for the decisions they make.
Good communications are a prerequisite if central banks are to maintain the democratic legitimacy and independence that are essential
to sound monetary policy making.
In addition, a considerable amount of evidence indicates that central bank transparency increases the effectiveness of monetary policy
and enhances economic and financial performance in several ways.
First, improving the public's understanding of the central bank's
objectives and policy strategies reduces economic and financial uncertainty and thereby allows businesses and households to make
Second, if practitioners in financial markets gain a better understanding of how policy is likely to respond to
incoming information, asset prices and bond yields will tend to respond to economic data in ways that further the central bank's policy
For example, if market participants understand that arriving information about the economy increases the likelihood of