Mester says Fed communications need improvement

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Cleveland Fed President Loretta Mester, who sits on the central bank's communications committee, said the repeated message from the Fed that rate hikes are "data dependent" fails to accurately portray that such decisions are actually based on medium-term economic forecasts.

"Our policy communications could benefit from further enhancements," Mester, a hawkish official who has a vote on policy this year, said at a Shadow Open Market Committee meeting. "Uncertainty is the norm, not the exception."

Specifically, she said the first paragraph of the Federal Open Market Committee's regular policy statements "tends to concentrate on changes in economic conditions since the last FOMC meeting, which can spur a short-run focus."

In one example of a statement zeroing in on an individual data sets, the FOMC said in July that: "Job gains were strong in June following weak growth in May..."

Mester, who backs a rate hike, was one of three policymakers to dissent against the Fed's decision last month to stand pat, a sign that internal divisions are growing. Rates have remained at 0.25-0.5 percent since December, when U.S. policy was tightened for the first time in nearly a decade.

(Reporting by Richard Leong; Writing by Jonathan Spicer)