Edit the Fed!

One of my recent pet peeves has been the growing length of FOMC policy statements. The statements have grown steadily longer without conveying more information. They’re terribly written and needlessly jargon-filled.

I’m not merely complaining about their general ugliness, but more importantly, such writing is bad policy. The central bank ought to be able to communicate with the public in a clear and concise manner. George Orwell famously wrote how the English language gets abused when it’s in the hands of the government. The Fed simply needs to say, “this is what we’re doing and this is why we’re doing it.”

The last statement ran on to 895 words. I wanted to try my hand at rewriting it. First, here’s the Fed’s version:

Information received since the Federal Open Market Committee met in July suggests that economic activity is expanding at a moderate pace. On balance, labor market conditions improved somewhat further; however, the unemployment rate is little changed and a range of labor market indicators suggests that there remains significant underutilization of labor resources. Household spending appears to be rising moderately and business fixed investment is advancing, while the recovery in the housing sector remains slow. Fiscal policy is restraining economic growth, although the extent of restraint is diminishing. Inflation has been running below the Committee’s longer-run objective. Longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators and inflation moving toward levels the Committee judges consistent with its dual mandate. The Committee sees the risks to the outlook for economic activity and the labor market as nearly balanced and judges that the likelihood of inflation running persistently below 2 percent has diminished somewhat since early this year.

The Committee currently judges that there is sufficient underlying strength in the broader economy to support ongoing improvement in labor market conditions. In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions since the inception of the current asset purchase program, the Committee decided to make a further measured reduction in the pace of its asset purchases. Beginning in October, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $5 billion per month rather than $10 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $10 billion per month rather than $15 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee’s sizable and still-increasing holdings of longer-term securities should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee’s dual mandate.

The Committee will closely monitor incoming information on economic and financial developments in coming months and will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. If incoming information broadly supports the Committee’s expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective, the Committee will end its current program of asset purchases at its next meeting. However, asset purchases are not on a preset course, and the Committee’s decisions about their pace will remain contingent on the Committee’s outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of such purchases.

To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy remains appropriate. In determining how long to maintain the current 0 to 1/4 percent target range for the federal funds rate, the Committee will assess progress–both realized and expected–toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. The Committee continues to anticipate, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored.

When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.

Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Stanley Fischer; Narayana Kocherlakota; Loretta J. Mester; Jerome H. Powell; and Daniel K. Tarullo. Voting against the action were Richard W. Fisher and Charles I. Plosser. President Fisher believed that the continued strengthening of the real economy, improved outlook for labor utilization and for general price stability, and continued signs of financial market excess, will likely warrant an earlier reduction in monetary accommodation than is suggested by the Committee’s stated forward guidance. President Plosser objected to the guidance indicating that it likely will be appropriate to maintain the current target range for the federal funds rate for “a considerable time after the asset purchase program ends,” because such language is time dependent and does not reflect the considerable economic progress that has been made toward the Committee’s goals.

Now here’s my version:

The data released since we met in July suggests that the economy is growing modestly. The jobs market’s getting better, but there are still too many Americans out of work. The good news is that households and companies are spending again, but the housing market is weak. The government’s smaller budget deficits are also holding back growth, but the impact here is waning.

Since the economy is improving, we’ve decided to taper our bond purchases again. Starting next month, the New York Fed will buy $10 billion per month of Treasuries and $5 billion per month of mortgage-backed securities. That’s a decrease of $5 billion for each. We’re also continuing to reinvest the interest and principal from these bonds. The goal of this policy is to keep long-term interest low, which in turn will help the economy.

Ideally, we’ll decide to wrap up our bond-buying program at our next meeting in late October, but there’s no guarantee. If the outlook for the economy changes, then we’re prepared to change as well.

Importantly, we still believe the economy currently demands a very loose monetary policy. In our view, we’ll need to keep interest rates low for a considerable time after the bond-buying ends. This is especially true if inflation continues to run below our 2% target. In fact, we may have to keep rates low even when we’re near our goals of 2% inflation and maximum employment. The key drivers of our policy will be the financial markets, the labor market and inflation (both expectations and signs of incipient inflation).

The Committee approved today’s policy by a vote of 8 to 2. The yes votes were:

Yellen (Chair)
Dudley (Vice-Chair)

The votes against were:


President Fisher believes the economy is doing well enough already and that we’ll soon need to pull back on monetary stimulus. President Plosser doesn’t believe interest rates will need to stay low for a considerable time after our bond-buying policy ends. He thinks the economy has already made considerable progress towards our goals.

Was that so hard?

The Fed’s version is 895 words. Mine is 344. I concede that there may be some subtle nuances that the Fed wanted to convey that I didn’t pick up on. After all, it’s written by a committee. Still, there’s no excuse for such horrible writing especially on important matters of public policy. I’m certain my version conveyed 95% of what the Fed was trying say but I needed less than half as many words.

Posted by on September 30th, 2014 at 10:49 am

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