“excessive transparency inhibits policymakers”
Greater transparency with regard to Federal Reserve actions encourages public discussion and informed scrutiny, important aspects of accountability in a democratic society. Transparency also enables financial markets to better predict monetary policy decisions, which can contribute to improved policy outcomes. However, providing more complete information about policy decisions is not without cost. Transparency requires careful attention by policymakers, and so constrains the time they have for actually making decisions. More importantly, excessive transparency could inhibit policymakers, making them less spontaneous in their remarks and less willing to explore new ideas. Such an outcome would have adverse effects on policy decisions. The Federal Reserve’s current practices strike a reasonable balance between transparency and the degree of confidentiality appropriate to support the policy process.
Federal Reserve Chairman Alan Greenspan’s Responses to Chairman Jim Saxton, Joint Economic Committee, House of Representatives, submitted
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