WASHINGTON, Nov 16: St. Louis Federal Reserve Bank President William Poole said on Friday the US central bank would likely fail if it tried to shape public perceptions of the economy in its policy statements.

If a policy statement exudes optimism, and new data arriving over subsequent weeks then suggest that the optimism was unwarranted, any psychological effect will be short-lived, Poole said in remarks prepared for delivery to students at the Washington University’s Olin School of Business in St. Louis.

Poole said statements announcing decisions on interest rates contain a number of elements, including the Fed’s view of the current state of the economy, its likely direction and risks, and information on the likely or possible future direction of policy.

The regional Fed bank chief, who does not currently have a vote on the central bank’s policy panel, said such statements also may involve an effort to shape public perceptions of the state of the economy, to encourage a sense of greater optimism or suggest a need for greater caution.

I emphasize ‘may’ with regard to an effort to shape public psychology because my view is that efforts in this direction that do not accord with the Fed’s own view about the situation are unlikely to be successful, he said.

Some analysts have said the statement following the Fed’s last interest-rate meeting on Nov. 6 appeared to be crafted with an eye toward building confidence in the economy’s prospects.

In that statement, which made public the central bank’s decision to lower short-term interest rates by a hefty half-percentage point, the Fed described the economy as being in a soft spot.

In addition, the central bank shifted its view of risks to the economy to one of balance between a possible pickup in inflation and economic weakness, from its earlier view that had seen weakness as the greater threat.

Poole, however, did not refer specifically to the Nov 6 statement but was speaking in general about the statements that the central bank issues after its policy-setting meetings.—Reuters