Daily Archives: January 31, 2012

Last week’s decision by the Federal Reserve to provide a quantitative definition of price stability and the publication of the 17 Federal Open Market Committee members’ expectations of the Fed funds rate over the next few years aims at improving transparency and accountability of the central bank. It also raises several questions.

To be effective, central bank communication needs to be well understood not only by sophisticated market participants but also by the public. As they are currently designed, the new tools might turn out to be too complex, and risk creating confusion, for both groups. This could be exploited by those, in particular in Congress, who are looking for new excuses to undermine the independence of the Fed. This risk should not be underestimated. Read more

With the Arab League passing the buck to the UN on how to deal with Syria, there is an urgent need for a strategy that promotes President Bashar al-Assad’s early departure and a transition, perhaps via his vice-president, to a broader government and from there to elections. At the same time, there needs to be unified international pressure on the regime to stop the killing and for both sides to respect a monitored ceasefire. Now that the fighting has reached Damascus, this is becoming even more urgent. This is all broadly consistent with the Arab League’s own plan.

Establishing humanitarian protection and a plan for political transition, without the big stick of threatened military action to back it, might seem a tall order for a divided Security Council. However if the two major dynamics of the Syrian crisis are respected, there could still be a happy conclusion. The first is that Syria’s religious complexity, where a small Alawite minority has been reluctantly trusted by other minorities as well the Damascus urban middle class, to hold in check a Sunni majority that comprises three quarters of the population, needs to be factored into a solution. The second is the need to include Syria’s neighbours into the peacemaking process to help ensure that chaos does not follow change. Read more