janet l yellen : revolution and evolution in central bank communications speech by ms janet l yellen, vice chair of the board of governors of the federal reserve system, at the haas school of business, university of california, berkeley, berkeley, california, 13 november 2012. * * * thank you. i ’ m delighted to be back at haas, which i ’ ve been proud to call home for much of my career. i ’ d like to thank dean lyons for inviting me to speak to you this afternoon. my subject is the recent revolution and continuing evolution in communication by central banks. all of us, of course, live in an era of revolutionary advances in communication : if i succeed in saying anything interesting this afternoon, those words may be posted, tweeted, and blogged about even before i ’ ve left this podium. so, it might seem unsurprising that the federal reserve, too, is bolstering its efforts at communication. but the revolution in central bank communication is not driven by technological advances. rather, it is the product of advances in our understanding of how to make monetary policy most effective. a growing body of research and experience demonstrates that clear communication is itself a vital tool for increasing the efficacy and reliability of monetary policy. in fact, the challenges facing our economy in the wake of the financial crisis have made clear communication more important than ever before. today i ’ ll discuss the revolution in thinking about central bank transparency and how, pushed by the unique situation precipitated by the financial crisis, the federal reserve has responded with fundamental advances in communication. indeed, i hope that one of the legacies of this difficult period is a permanent and substantial advance in federal reserve transparency, building on the policies i ’ ll talk about shortly. as you all know, the federal reserve is actively promoting a faster recovery. our efforts are hampered by the fact that our standard policy tool, the federal funds rate, is near zero and cannot be reduced much further. in this extraordinary environment, the federal reserve is employing two unconventional policy tools to spur job creation and growth : large - scale asset purchases, which some people call quantitative easing, and communications about the future course of monetary policy, also known as forward guidance. at the federal open market committee ’ s ( fomc ) meeting in september, the fomc – the federal reserve ’ s principal monetary policymaking body – employed both of these unconventional tools. the committee initiated a new large - scale asset purchase program to

buy mortgage - backed securities ( mbs ). in addition, with regard to forward guidance, the committee said that, first, it intends to continue buying mbs and other assets until it sees a substantial improvement in the outlook for the labor market. 2 second, the committee stated that it expects a highly accommodative stance of monetary policy to remain appropriate for a considerable time after the economic recovery strengthens. and third, the committee noted that it currently expects to hold the federal funds rate at exceptionally low levels at least through mid - 2015, about a half - year longer than previously announced. the three elements of forward guidance that were adopted by the fomc in september 2012 would have been unthinkable in 1992 and greatly surprising in 2002, but they have, in my view, become a centerpiece of appropriate monetary policy. to better explain my views i am indebted to members of the board staff – jon faust, thomas laubach, and john maggs – who contributed to the preparation of these remarks. the september fomc meeting statement further indicates that the committee will take account of the likely efficacy and costs of such purchases in determining the size, pace, and composition of its asset purchases. see board of governors of the federal reserve system ( 2012 ), “ federal reserve issues fomc statement, ” press release, september 13. bis central bankers ’ speeches regarding the fomc ’ s forward guidance, i will first discuss how it fits into the committee ’ s broader thinking and communication about monetary policy. the fomc took a major step to explain this thinking last january when it issued for the first time a “ statement of longer - run goals and policy strategy. ” 3 this statement provides a concise description of the fomc ’ s objectives in conducting monetary policy and the approach the committee considers appropriate to achieve them. i will present my views on the implications of this statement for monetary policy in current circumstances. i will then discuss several approaches the fomc has recently considered to enhance its communications to make its policy more effective in this challenging situation. let me emphasize that the views i express here are my own and do not necessarily represent those of my colleagues in the federal reserve system. the case for central bank transparency to fully appreciate the recent revolution in central bank communication and its implications for current policy, it is useful to recall that for decades, the conventional wisdom was that secrecy about the central bank ’ s goals and actions actually makes monetary policy more