By Michael S. Derby
If the Federal Reserve wants the public to embrace its new approach to inflation and monetary policy, it's got a lot of work to do.
Federal Reserve Bank of Cleveland research released Friday finds that the move by the central bank late last month, unveiled in a speech by Fed Chairman Jerome Powell, to shift to a flexible system of inflation targeting was almost entirely ignored by the broader public.
"Despite extensive coverage in the news media, Powell's speech apparently did not reach or register with the vast majority of the population," the Cleveland Fed report said.
To determine the public's awareness levels, the Cleveland Fed has been using surveys to track how much information people have heard and taken in about the Fed. While the survey has been running since March, the report focused on the Fed's new strategy, in large part because such moves are rare. The change was important given the central bank's historic fight to contain inflation, and because it suggests the central bank will keep rates low well into the future.
At the end of August, Mr. Powell announced that the Fed would formally allow inflation to go over its 2% target to make up for times when it has fallen short of that goal. The Fed built on that new framework at its rate-setting Federal Open Market Committee meeting this week. At the meeting, officials held their short-term target rate steady and said that they would keep their short-term target rate very low until the job market had reached its maximum sustainable level and inflation had risen to 2% and was on a path to moderately overshoot that goal.
Part of the Fed's new strategy is aimed at ensuring the broader public doesn't expect weaker future inflation, which is a real risk given low price pressure readings. But the Fed faces a communications hurdle: While many in the financial sector pay acute attention to what the central bank says, the broader public generally pays little attention.
Based on the findings of a daily survey conducted after Mr. Powell's August speech, "we detect only a very small uptick in the fraction of the population that reported having heard news about the Federal Reserve in the days immediately following the announcement," the report's authors wrote. "This finding suggests that the announcement did not significantly affect the general public's perception of monetary policy."
In the survey, most households reported hearing nothing about the Fed's news at all, and "less than half of the people who heard Fed-related news after the announcement reported that the news was about a new strategy by the Federal Reserve."
And there was more bad news for the Fed's communications effort: "Even for those who heard news about monetary policy following the announcement, the news had little impact," with respondents not registering the new inflation strategy at all.
The paper holds out hope that the Fed can get through to people. "While this announcement may not have had any meaningful effect on the public's perception of the monetary policy strategy, it does not rule out the possibility that, when presented directly and concisely to individuals, information about [average inflation targeting] could lead households to change their beliefs in a manner consistent with the theory."
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