The Federal Reserve has communication issues it is trying to deal with.
Minutes of the January meeting released Wednesday showed that FOMC members considered adding so-called “fan charts” to future economic projections, which are published quarterly.
The fan charts would show the full range of data possibilities the Fed’s considering in a single visualisation, while including the central forecast.
According to the Fed, these charts would convey the uncertainty that the committee faces when it makes its forecasts.
For instance, there could be a fan chart for the Fed funds rate to show that monetary policy does not follow a defined path and is dependent on income data.
But there are pros and cons. From the minutes:
On the one hand, these charts would enhance the Committee’s communications by providing a visual representation of the uncertainty surrounding the median projections for each variable, although it was noted that the meeting minutes and the SEP already provide information about participants’ assessments of the uncertainty regarding the economic outlook …
On the other hand, some participants thought that the proposed fan charts still could be challenging for the general public to interpret.
And so, the debate centres around whether the charts would add a helpful layer of communication to projections the Fed already puts out there.
But this could end up confusing people even more, and the median or central forecast could be misconstrued as a consensus view shared by all FOMC members. There was also concern that charts of the Fed Funds rate could show the possibility for negative rates.
No agreement has been reached on this, and the Fed’s sub-committee on communications will continue to consider it.
The European Central Bank and other central banks already uses fan charts. Here’s an example, from the ECB’s latest macroeconomic projections:
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