(Bloomberg) -- The European Central Bank isn’t well suited for the Federal Reserve’s approach to signaling the future path of borrowing costs and should find other ways to improve its communication instead, Governing Council member Joachim Nagel said.
The Bundesbank president argued in a speech that a “dot plot,” which the Fed uses to convey officials’ individual predictions of where interest rates are headed, isn’t a good option for the euro area because it could invite pressure on policymakers to act in the national interest. He is also unconvinced such a tool would even help ECB messaging.
“Given the prevailing evidence, I do not see a compelling case for introducing dot plots for the Eurosystem,” Nagel said at Harvard University on Tuesday. “On the other hand, I firmly believe that we can and should enhance how we account for uncertainty in our macroeconomic projections.”
The remarks advance an ongoing debate among ECB officials on how to better frame their quarterly forecasts after a failure to accurately predict the spike in inflation during the pandemic.
Executive Board member Isabel Schnabel said earlier this year that dot plots could help in this regard, while acknowledging that they have their own shortcomings. Other officials in the region have also been skeptical.
ECB President Christine Lagarde said in July that this option won’t be discussed in a review of the central bank’s strategy that should be completed next year. Nagel proposed a focus on “more effective alternatives.”
“One might be to enhance the communication of our existing measures of uncertainty,” he said. “Another might be to develop new measures, such as scenario and sensitivity analyses, as well as improved fan charts. We must carefully evaluate the pros and cons of each approach.”
--With assistance from Mark Schroers.
©2024 Bloomberg L.P.