Ian Morris, chief economist at HSBC Securities USA, says that minutes of the Federal Reserve Board’s August 12 meeting indicate the Fed may be about to change the content of the closely-watched policy guidance that accompanies rate decisions.

In a research note, Morris suggests, “It appears the Fed may have opened the way for changes to the style and content of the risks statement, and perhaps with changes to occur fairly regularly if deemed to be desirable.” He suggests that the first change could come as early as the next FOMC meeting on October 28, “if it felt it was the right thing to do”.

“Pure speculation here, but one possibility is that if growth were to prove to be much stronger than expected between now and the next meeting, the FOMC might feel uncomfortable describing the growth risks as to the upside, even though it will maintain the downside inflation risk,” he offers. “The reason is that and upside growth risk could trigger an unwanted (from the Fed’s perspective) Treasury market sell-off. So, it could choose to simply drop the growth risks, while keeping the downside inflation risks intact.”

“Another approach is for the Fed to drop the formal risk statements altogether and replace it with a couple of descriptive paragraphs that change constantly over time, but still makes clear where the risks lie,” he proposes.

He cites a few key quotes from the August 12 minutes: “On September 15, 2003, the Committee met to review its practices regarding the communication of its policy decisions and its assessment of the risks… . After a detailed discussion…, the Committee elected not to make substantial changes in its current approach to the policy announcement at this time. ..Nonetheless, members recognized that going forward they might, from time to time, consider changes that might improve the Committee’s communication of its assessment of the economic situation.”

http://www.federalreserve.gov/FOMC/minutes/20030812.htm