Monetary Policy and the Fed’s Love Language
Economies are like relationships; they can run hot and cold, up and down and past behavior does not necessarily equate to future results.
As such, explaining the nuance of monetary policy and the intricacies of macroeconomics can be difficult under the best of circumstances and isn’t helped by the natural inclination of federal officials to serve up a jumble of bureaucratic jargon in public communications.
But a closer look at the ingredients of the Fed’s latest policy word salad reveals the central bank’s love language with the economy.
When psychologists and counselors mention love language, they are talking about the way a person prefers to express love to – and receive it from – a partner. The difference “languages” include physical touch, quality time, receiving gifts, acts of service and words of affection. It is through that lens we can decipher the Fed’s feelings about the economy and what we might expect when policymakers gather again for a two-day meeting on Halloween and All Sants Day.
Underneath the dry pronouncement about the health of the economy – describing economic activity as “solid” and policymakers’ determination to be “highly attentive” to inflation risks — the Fed release affirms the central bank intends to “maintain” its commitment to the 2% inflation target and will continue to “assess” information for potential policy moves.
To accomplish this, Fed officials pledged to “continue to monitor” economic statistics and results and their “implications” for the economic outlook.
The release goes on to say the Fed will “adjust” monetary policy “as appropriate” to offset any risks that could “impede the attainment” of the agency’s goals.
Beyond the usual phrases and boilerplate rhetoric, the document’s use of language is a clear signal that, for now at least, the standing order for the economy is “steady as she goes.”
The language is mild and measured. Words like “solid” and “strong” along with “attentive,” “assess” and “maintain” paint a picture of Fed attention – acts of service if you will – to ease consumer and market concerns about the path of monetary policy.
The calmness inherent in describing the Fed’s immediate plans to “monitor” and “adjust” as needed implies calmer economic seas than how conditions have been described across the media landscape.
With the 2024 election season already heating up and a tumultuous political weather forecast for the coming months, the Fed’s measured policy actions could become a safe harbor for economic optimists. Or they could be the calm before the storm.
Fed Chairman Jerome Powell has done yeoman’s work in putting a soft spin on the economy in speeches and press conferences – an example of quality time if there ever was one.
It remains to be seen if the Fed’s language of love will continue to keep consumers, investors and corporate boards satisfied with the pace and director of monetary policy. And that would be a welcome gift to receive.