The Federal Reserve needs to explain how it determines policy decisions as the economic data roll in, not reduce communications with the public, St. Louis Fed President Alberto Musalem said Tuesday.

In a speech at the London School of Economics and Political Science, Musalem said that there's been a "lively" debate about how the Fed should communicate its monetary policy decisions. Musalem contends that communicating a framework that provides the public with how and why policy is determined, rather than a forecast, is the best solution.

"A central bank should communicate how it turns incoming information into policy," Musalem said. "The communications choice before us is not between noisy overpromising and stoic silence. It is between leaving the public to guess how the central bank thinks and telling them."

Musalem, who is not currently a voter on the bank's policy-setting Federal Open Market Committee, indicated that he's in favor of explaining to the public and market participants how rates could be adjusted in response to changing economic conditions to achieve the Fed's policy goals of maximum employment and price stability. He added that a "clearly communicated" framework results in smoother transmission of policy, better economic outcomes, and stronger democratic legitimacy.

A policy framework, however, is not the same as providing forward guidance of a specific policy path, Musalem noted. The Fed and other central banks should avoid communications and actions with no framework to make sense of them, he added.

"Promising a specific interest rate path is what earned forward guidance a bad name," Musalem said.

But nor should the Fed and other central banks exit the conversation altogether.

"A central bank that does not explain how or why it makes policy decisions leaves the public to guess whether it is following a clear and reasonable approach or simply exercising discretion in setting policy," Musalem said.

Unexplained policy decisions risk being interpreted as "discretion," Musalem said, which can be costly in terms of long term price growth and inflation expectations.

That said, Musalem added that he's "sympathetic" to the argument that a central bank should let financial markets react to economic data and other signals, rather than the latest speech or remark from policymakers.

Fed Chairman Kevin Warsh has previously said that he wants to avoid forward guidance to more clearly see the reaction of financial markets, adding in the July press conference that "market participants are learning to play the ball, not the referee-and market prices will continue to respond in the direction and magnitude they see fit."

But a number of economists have pointed out that Fed is not an umpire who is calling balls and strikes, but rather the player in the game that sets rates.

"Markets react to data through their expectations of how the central bank will respond to macroeconomic developments," Musalem said. "So when a central bank keeps its framework to itself, it does not free up markets to focus on data and other information. Rather, it forces market participants to guess how the central bank will assess the state of the economy and react to it."

In other words, guessing adds "noise," Musalem said. That can lead to added premiums for uncertainty.

"This shows up as higher and more volatile long-term interest rates and, ultimately, higher financing costs for households and businesses," he added.

At the end of the day, a clearly communicated framework is the "rare promise" that is entirely within the Fed's control, Musalem said.

"The most important thing a central bank can tell the public is not what it will do at the next few meetings. It is how and why it will decide as the economy unfolds," Musalem added.