Fed to make forecasts on interest-rate shifts

WASHINGTON – In a major shift, the Federal Reserve will start announcing four times a year how long it plans to keep short-term interest rates at existing levels, according to minutes from its December policy meeting.

The shift marks the Fed’s latest effort to make its communications with the public more open and explicit.

The change is intended to reassure consumers and investors that they will be able to borrow cheaply well into the future. And some economists said it could lead to further Fed action to try to invigorate the economy.

The Fed’s first forecast for interest rates will be included in the economic projections it will issue after its Jan. 24-25 policy meeting.

More guidance on rates might help lower long-term yields further – in effect providing a kind of stimulus. Lower rates could lead consumers and businesses to borrow and spend more. The economy would likely benefit.

Lower yields on bonds also tend to cause some investors to shift money into stocks, which can boost wealth and spur more spending.

The Fed has left its key short-term rate at a record low near zero for the past three years. In August, it said it planned to leave the rate there until at least mid-2013, unless the economy improved.

In January, the Fed will release an interest rate forecast for the October-December quarter of 2012 and for the next few calendar years, the minutes show. It will update that forecast each quarter.

Mark Zandi, chief economist at Moody’s Analytics, said he thought the minutes signaled that the Fed will keep its benchmark rate at a record low beyond the mid-2013 target it previously set.

“Most people had expected the funds rate would start rising in the second half of 2013,” Zandi said. “But Fed officials seem to be more concerned about the economy’s prospects than investors currently think.”

David Jones, an economist who has written several books about the Fed, said the decision to regularly update the public on expectations for interest rates carries some risk. If the Fed must alter its rate forecast in response to changes in the economy, it could lose credibility with investors.

The Fed’s plan for more explicit guidance on interest rates follows other steps to make the central bank more transparent that began under Chairman Alan Greenspan and accelerated under the current chairman, Ben Bernanke.

The U.S. economy finished strong in 2011. The Institute for Supply Management said Tuesday that U.S. factories enjoyed their best month of growth in December since late spring.

And the struggling construction industry spent more on projects in November for the third time in four months, the Commerce Department said.