His chart on the effectiveness of Fed policy is particularly neat. Essentially, he plots annual long-term real interest rates against short-term real interest rates for the years from 1980 to 2007, draws a regression line, and then adds on dots for 2008 to 2011.

The median participant (9th of 17) thinks rates should be 1 per cent at the end of 2014 and the median voter (5th or 6th of 10) must think they should be a minimum of 0.5 per cent. The statement is a committee decision and it can reasonably be different from the median individual view. It is still confusing, though, and weakens the credibility of the statement when they look so different.

The Fed is looking at a wide range of options to tweak communications further. Some would resolve the issues with this chart – for example Mr Bernanke acknowledged the idea of identifying who made each individual forecast – while others address the broader and more important question of giving information on the Fed’s reaction function.

Here, though, are a few ways to address the simple confusion caused by the voter/non-voter divide in the rate forecast chart. 

The Fed’s interest rate forecasts, however, are getting the bank into a real bind:

What to expect

Not a lot. If there are any substantive moves, I would expect them to be changes in the communications framework, rather than to existing parameters of monetary policy.

It reflects an evolution from the labour market “mismatch” that he was talking about a couple of years ago (a lot of research has failed to turn up much geographic or skills mismatch) to a view, espoused by various people in various different ways, that there may have been a one-off downward shift in potential output. That means a smaller output gap and hence an earlier rise in interest rates.

But is Mr Kocherlakota’s argument convincing? 

“A few members observed that, in their judgment, current and prospective economic conditions – including elevated unemployment and inflation at or below the Committee’s objective – could warrant the initiation of additional securities purchases before long. Other members indicated that such policy action could become necessary if the economy lost momentum or if inflation seemed likely to remain below its mandate-consistent rate of 2 percent over the medium run.”

The rise in GDI invalidates part of what Ben Bernanke said in his labour markets speech only three days ago. Mr Bernanke said (my emphasis):

Mr Shirakawa set out four problems with aggressive monetary easing in the wake of a financial crisis. These are closely mirrored in the US debate about Fed policy but on several points he took the argument further:

“Troy Davig has been named senior vice president and director of research. Davig had served at the Bank from 2005 to 2010 in the Economic Research Department. He is rejoining the Bank after serving as senior U.S. economist for Barclays Capital since 2010. As director of research, Davig will act as the Bank’s chief economic policy advisor, provide executive oversight for the Bank’s Economic Research Division and serve as a member of the Bank’s Management Committee, which has responsibility for the Bank’s strategic planning and policy.”

Although low profile, the twelve research directors of the regional Fed banks are very important to monetary policy, especially when the president of the bank is not a macroeconomist. Esther George, who was appointed president in Kansas City last October, is mainly known for her work on bank regulation.

In particular, talk that the FOMC is now studying a programme of “sterilised” quantitative easing is, in my view, incorrect. I think the current FOMC discussion looks more like this: