The Federal Reserve, under pressure from a critical White House even while it largely hits its targets of stable inflation and maximum employment, will conduct an extensive review next year of how it guides the world's largest economy.
The U.S. central bank said on Thursday it will hold a series of forums across the country to hear from a "wide range" of stakeholders on how to improve its policy approach.
By the time the review wraps up in the second half of 2019, it could lead to a rethink of the tools the Fed uses to achieve its goals and the way it communicates policy to the public and financial markets.
The unusual announcement suggests that Jerome Powell, who became Fed Chair in February, wants to quicken the central bank's decades-long march toward more transparency in order to head off any damaging political interference.
"Now is a good time to take stock of how we formulate, conduct, and communicate monetary policy," he said in a statement, noting the Fed was close to meeting its employment and inflation goals.
The Fed plans to host a series of events, including a research conference at its Chicago branch in June, to support the review. Fed policymakers then plan to discuss the perspectives gained in the outreach around the middle of the year, and would subsequently report their findings, the Fed said.
No changes are guaranteed. But the Fed's inflation mandate, which it interprets to be 2-percent, and its other mandate to achieve maximum sustainable employment will likely be put under the microscope by not just economists and investors but also workers, employers and civic leaders.
President Donald Trump publicly slammed the Fed's gradual rate hikes for imperiling the expansion, calling it "crazy" last month.
In the wake of the 2007-2009 financial crisis and recession, the Fed leaned on powerful but unconventional tools such as purchases of trillions of dollars of bonds and promises of near-zero rates over extended periods. It also began publishing individual policymakers' anonymous forecasts for future rate hikes and key economic metrics.
Now that the economy is growing well above potential and unemployment is down to 3.7 percent, with inflation roughly at the 2-percent target, the Fed has settled into a roughly quarterly rate-hike cycle.
The review means it is also taking advantage of calm waters to take stock and plan for the next downturn.
Options include rising the inflation target, choosing a range rather than a narrow target, or targeting nominal GDP instead.
"None of these alternative frameworks are without challenges but all are worth thorough review," Cleveland Fed President Loretta Mester said in an Oct. 25 speech in New York.
"It might be useful to do something akin to simulated stress testing to see how each framework might fare," she added.
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