Fed's Musalem Proposes 18-Month Target Horizon and Scenario-Based Communication Framework

St. Louis Fed President Alberto Musalem proposed an enhanced monetary policy communication framework, advocating that the FOMC communicate a specific horizon for meeting its dual mandate. Musalem suggested an 18-month benchmark to maintain accountability without requiring frequent readjustments. He urged the Fed to replace rigid rate path projections with two to three plausible economic scenarios and estimated probabilities. Musalem warned that lacking an explicit decision-making framework forces markets to guess, creating a 'hall of mirrors' and elevating risk premiums. The speech provided no updates on the near-term interest rate outlook.