Bernanke says policy predictability crucial

By Alister Bull

ST LOUIS (Reuters) - Federal Reserve Chairman Ben Bernanke said on Friday that being predictable was the cornerstone of running a successful central bank policy.

"Predictability is critical in building credibility. It is critical in reducing uncertainty, in making long term interest rates respond in appropriate directions to Fed actions," he told a conference in St Louis by satellite link, during a panel discussion on making monetary policy under uncertainty.

The Federal Reserve is reviewing its communication strategy, including whether to adopt an explicit inflation target, although Bernanke did not touch on this specifically.

"My idea of being predictable is on the one hand to use benchmarks ... but also to provide information to the public what our outlook is, what our forecast is, how we see the risks and how we plan to respond.

"That communication, and providing adequate information, is really the only way to be adequately predictable in a world of uncertainty," Bernanke said.

Bernanke was speaking from Washington before taking part in a meeting of the Group of Seven industrialized nations to review the outlook for the world economy, after violent market swings sparked by a credit crunch amid slumping U.S. housing.

The panel discussion in St. Louis was with St. Louis Fed President William Poole and former Under Secretary of Treasury for International Affairs John Taylor. The conference was in Poole's honor, before he retires in March.

Poole, a voting member of the Fed's interest rate-setting committee this year, also emphasized predictability, but said that backing actions with deeds was also key.