The Fed's New Era Of 'Glasnost'

Secrecy: Fed chief Ben Bernanke wants to open up the central bank as it's never been before -- letting Wall Street and Main Street alike know with greater frequency and in greater detail what's going on. It's about time.

Since the Federal Reserve's founding in 1913, its operations have been largely shrouded in secrecy. Bankers, especially those who control the nation's money supply and banking system, hate to let us mere mortals in on what they really are thinking.

This has largely continued up to today. Former Fed chief Alan Greenspan won kudos the world over for bringing greater transparency to the Fed's business by announcing after its policy meetings what the bank did and why.

This was a huge step forward. Before Greenspan, the Fed said nothing and let the market and the world guess what it was doing. The result at times was confusion.

But even Greenspan seemed to revel in secrecy and cryptic fedspeak -- a word coined to describe the owlish chairman's often convoluted descriptions of what was going on. As he said in a revealing joke in 1988: "I guess I should warn you -- if I turn out to be particularly clear, you've probably misunderstood what I said." He was only half-kidding.

In flogging his recent memoir, "The Age Of Turbulence: Adventures In A New World," Greenspan seemed to delight in telling interviewers how he kept the world in the dark through his use of oblique, nondescript language. For bankers, maybe that's a good thing. For the rest of us, it's a disaster.

Now comes Bernanke, who took over as chairman in February 2006 and seems willing to leave behind the days of secrecy and obscurantism.

On Wednesday, he promised to tell the nation four times a year how the Fed believes the economy will perform for the next three years. That's a big change from the current practice of telling us twice a year and giving out Fed forecasts for only two years.

The reports will include forecasts for how fast the economy is expected to grow and for levels of unemployment and inflation. Fed policymakers also will give detailed analyses that reveal what they are thinking about the economy.

"The changes will provide a more timely insight into the outlook, will help households and businesses better understand and anticipate how our policy decisions respond to incoming information and will enhance our accountability for the decisions we make," Bernanke told a monetary policy conference at the Cato Institute.

How refreshing for a group of policymakers in Washington to call for themselves to be held more accountable for what they do. This is not normal. We would love to see the current Congress follow suit.

Such accountability isn't just window dressing, either. In an age of topsy-turvy markets and instant communication, with billions of dollars capable of moving around the globe at nearly the speed of light, information is the most valuable commodity.

One bad move could be costly. It is dangerous for the Fed to keep information from the public and risk a colossal mistake if the markets should misread what it's doing. It could undermine Americans' confidence in their banking system and in the Fed itself.

Remember: The Fed isn't a government agency per se. It's a quasi-governmental entity, its 12 district branches owned by the very banks it regulates and supplies with money. It has vast powers that affect all Americans -- indeed, everyone around the globe; two-thirds of all U.S. currency is used in other countries. We should know what it's doing -- and why -- at all times.

Those who think otherwise should study what happened in 1937. That year, the U.S. economy, struggling to emerge from the Great Depression, was plunged anew into a steep recession due in large part to a Fed mistake -- one Americans didn't even know about.

A 2006 study by Fed economists Gauti Eggertsson and Ben Pugsley concluded "confusing communications" by the Fed and others were the cause of "one of the sharpest recessions in U.S. history."

That should never happen again. Thanks to Bernanke's wise move, it likely won't.