Fed to Emulate Boe By Issuing Quarterly Report on Economy

The US Federal Reserve yesterday announced sweeping changes to the way it communicates with investors and the markets, by moving to a Bank of England-style quarterly report of economic prospects.

The US central bank has long been considered to move in mysterious ways and until now has released projections of inflation and economic growth only twice a year.

Fed chief Ben Bernanke, who replaced Alan Greenspan in February last year, said greater transparency from the central bank would increase the effectiveness of monetary policy.

"The changes will provide a more timely insight into the [Fed's] 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," the Fed chief said in a speech.

The announcement marks Bernanke's biggest change to the way the Fed works since he took over the reins.

The Fed has cut interest rates twice in the past three months in response to the collapsing housing market and the sub-prime mortgage crisis that has led to a global credit crunch.

Rates in the US are now at 4.5% but analysts expect the Fed to ease policy further in the months ahead.

The first new-style forecasts will be released next Tuesday together with the minutes of last month's meeting of the federal open markets committee, which sets rates. The new system echoes that of the Bank of England, which releases its report every quarter. The Fed will issue its forecasts a month ahead of the BoE, in January, April, July and October.

Bernanke has made no secret of his admiration for the BoE having a specific inflation target, but moving to such a system requires a change in the law. Yesterday he did not rule out such a change, though.

As part of the Fed's effort to provide more economic information, policymakers will forecast the overall inflation rate as well as "core" inflation, which excludes food and energy prices, Bernanke said.

Separately, US media reported yesterday that New York stock exchange chief executive John Thain was set to join Merrill Lynch to replace Stan O'Neal, who was ousted from his job last month after the investment bank announced huge losses resulting from the credit crunch.

Neither Merrill nor the NYSE would comment but analysts said if true the news was good for Merrill Lynch because Thain is a respected figure on Wall Street.