timothy f geithner : uncertainty and transparency in the conduct of monetary policy remarks by mr timothy f geithner, president and chief executive officer of the federal reserve bank of new york, at the financial services leadership forum breakfast, new york city, 31 may 2006. * * * at the jackson hole symposium in 2003, alan greenspan remarked that " uncertainty is not just an important feature of the monetary policy landscape ; it is the defining characteristic of that landscape. " historically, this pervasive uncertainty was associated with a tendency toward opacity on the part of central bankers. but in recent years we've seen a rather dramatic reversal in this tendency as central bankers have come to recognize the potentially valuable role that communication with financial markets and the general public can play in the achievement of monetary policy goals. while transparency has emerged as one of the hallmarks of modern central banking, so too has an appreciation for the challenge of communicating about policy under uncertainty. this challenge can be substantial. it means conveying not only the most likely trajectory for key economic variables, but also the uncertainty around that trajectory and perhaps some indication of how policy might react under the myriad ways that the uncertainty could be resolved. i want to devote my remarks today to exploring what it means, and what it does not mean, for a central bank to communicate in an effective way about policy in the face of uncertainty. the issue of communication is particularly relevant in the current economic environment. for much of the past three years, financial markets have reflected a high degree of certainty about the near - term outlook for monetary policy in the united states. market expectations in the weeks preceding each of the last 16 federal open market committee ( fomc ) meetings attached a probability close to one that the fomc would raise the target for the federal funds rate by 25 basis points. also, there was very little probability attached to inter - meeting moves over this period, or to moves in increments larger than 25 basis points. and, although market expectations about how far the fomc would ultimately move were revised significantly over the course of this period as the economic outlook was revised, these changes occurred without the committee needing to deviate from the near - term path. this period of unusual certainty in the path of the fed funds rate was the result of a confluence of factors. when the committee first moved to tighten policy in june 2004, the fed funds rate was at the historic low of 1 percent, and it was clear that policy would

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