Does the Federal Reserve Board Have a TMI Problem?

Does the Federal Reserve Board Have a TMI Problem?

We live in the most informed society to date in human history. We also live in the most misinformed society in history. Living in a world where the fallback position is one of too much information and the result runs the gamut from total confusion to complete indifference.

With the advent of social media and the millions of self-appointed experts available to enlighten us, it is fair to say we are now part of the Too Long; Didn’t Read generation. That’s a big enough problem navigating everyday life, but when it comes to monetary policy and the Federal Reserve Board, it can get even worse.

These days it seems as if Fed policymakers feel the need to inform the public about every thought and idea they have regarding interest rates, the economy and their Holy Grail of the dual mandate of price stability and maximum employment. And while being an informed citizen and consumer is important, Fed announcements can be difficult to decipher without a degree in economics.

It wasn’t always this way. In fact, it’s only been in the last 30 years or so that the Federal Reserve Board has released minutes of its Federal Open Market Committee meetings in its current form. It’s only been about 25 years since the Fed started issuing a public statement after every FOMC meeting.

The transparency and communication efforts of the Fed are certainly well-intentioned and have contributed to a deeper understanding by the American public of how monetary policy decisions are made and what the implications are for interest-rate hikes or cuts.

In a recent speech, Fed Vice Chair Philip N. Jefferson lauded the central bank’s efforts to communicate more openly with the public.

“To fulfill our dual mandate of promoting maximum employment and price stability, it is vital that we make good monetary policy decisions and that we communicate those decisions to the public effectively,” Jefferson said in the speech. “Clear communication can affect the expected path of interest rates and financial conditions more generally.”

From Jefferson’s perspective, providing the public with detailed information about what the Fed is doing and why it is doing it is a good thing and can actually play a role in impacting policy decisions.

“Financial markets would be able to anticipate the likely future course of monetary policy and help the central bank do its work by affecting long-term rates and other asset prices,” he said.

This is all good in theory, but it is unclear if it really works that way in practice.

As a nation we have become obsessed with interest rates and await every Open Market Committee meeting with anticipation. Speculation about possible monetary moves fills the pages of business and finance publications, and social media is replete with a wide variety of opinions – informed, uninformed, as well as deliberately misleading. And despite the appearance of transparency in the Fed’s communications policy, the often tangled jargon Fed policymakers use in announcing their decisions can be more baffling than enlightening.

This is not to say that things were better when the Federal Reserve operated behind a veil of secrecy, open only to those in their economic ivory towers. But most people don’t read Fed releases and even fewer understand them. That leaves fertile ground for misunderstandings and misinterpretation of Fed decisions. And in that information vacuum, bad actors will gladly fill the void with their own spin on Fed policy – whether accurate or not.

Mark Twain once said, “Too much of anything is bad, but too much good whiskey is barely enough.” When it comes to the Federal policy statements, even good whiskey may not be enough.