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April 19, 2013

Historical Echoes: Fedspeak as a Second Language

Amy Farber

First there was Newspeak (from George Orwell’s book 1984), which intended to bend the thinking of the masses, then there was doublespeak (derived from Newspeak, meaning a deliberate disguising or distortion of meaning, and with its very own achievement award), and then there was Fedspeak (and likely many other “-speaks”).

     But what does Fedspeak mean? In October 2012, Ben Bernanke made clear his commitment to improving Fed communication. Previously, however, the term had gone through multiple evolutions. This post looks at some of them.

     One definition of Fedspeak (capitalized or uncapitalized, one word or two) comes from an online financial dictionary:

Informal term for the statements made by former Federal Reserve Chairman Alan Greenspan. Greenspan was known to make long, vague statements on future changes in Federal Reserve policy; it was speculated he did so on purpose to prevent overreactions to his statements in the stock market.

     Another characterization of Fedspeak comes from’s guide to reading the Beige Book:

To read the Beige Book effectively, one must become accustomed to “Fed speak,” a special verbiage of measured remarks intentionally designed to say a little without ever saying a lot. The last thing the Fed wants to do with its words is corner itself into a pre-supposed policy decision prior to the next FOMC meeting. Investors won’t ever see a definitive statement about the Fed going one way or the other with monetary policy, but there may be valuable clues in the Beige Book—at least for the trained eye.

     Greenspan himself used the word “obfuscate” to describe what he was doing when engaging in Fedspeak, according to this 2007 Chicago Tribune article:

This apparent doublespeak—call it nuance or equivocation—was commonplace under Bernanke’s predecessor, Alan Greenspan.

Indeed, in a presentation Thursday to executives in Atlanta, Greenspan said opaque answers to straightforward questions were part of the job, because he couldn’t say “no comment” and he didn’t want markets to overreact.

“What tends to happen is your syntax collapses,” he said, according to a report of his appearance by the Atlanta Journal-Constitution.

“All of a sudden, you are mumbling. It often works. I created a new language which we now call Fedspeak. Unless you are expert at it, you can’t tell that I didn’t say anything.”

     Much time and effort have been invested by people involved in financial markets to decipher the true meaning of Fed communication. (See “Parsing the Fed,” which attempts to translate into plain English Federal Reserve press releases from 2004 to 2009. Note that this overlaps the end of Greenspan’s time as chairman, 1987-2006.) In this post-Greenspan communication analysis, the meaning of Fedspeak already seems to be undergoing a change from intentional ambiguity. It’s used here to mean simply “communication from the Fed.” The question is, does the original meaning of Fedspeak, involving intentional ambiguity, begin and end with Alan Greenspan?

     Did Fedspeak exist as either a word or a concept before Greenspan became Fed chairman? According to Google’s Ngram Viewer, it appears that the word becomes relatively more common in the 1990s and 2000s; before that, it’s probably not referring to the Federal Reserve, but the federal government. The Fed has always been in the business of communicating important information. This WSJ blog entry, “A Timeline of Fed Communications,” summarizes Fed efforts to improve transparency, starting in 1975. For a long time, great care had been taken to ensure how that information was phrased, and that phrasing can be found throughout the Federal Open Market Committee (FOMC) minutes. To understand how the Fed views its communication today, we might as well go to the top and read Ben Bernanke’s 2004 speech to the American Economic Association, “Fedspeak.”

     It seems that at some point, Fedspeak may have taken on the meaning of “doublespeak.” In fact, use of the word can be found in writing that has nothing to do with the Fed or anything related to it. Note this excerpt from a recent post about a geomagnetic storm:

NOAA [National Oceanic and Atmospheric Administration] forecasters estimate a 55 percent chance of M-class solar flares today as the sunspot’s magnetic field shifts and destabilizes. Eruptions later this week could be geoeffective (that’s fedspeak for impacting the earth) as the sunspot turns to face Earth.

     What in blazes? The desire to be perceived as in the know may be coming into play here. If you’re a member of the media and you use the word Fedspeak to mean “any announcement from the Fed,” you may seem closer to the source of the communication than if you say “Fed communiqué,” or “Fed announcement.” And if you can use Fedspeak when you’re not even talking about the Fed—well, that could mean any number of things.

     Which brings us back to Bernanke.

     Bernanke has made his commitment to improved Fed communication clear: In an October 2012 speech, he lists “communication about the Fed’s expectations regarding how long interest rates will remain exceptionally low” as a “second new monetary policy tool.” (The first is securities purchases.) Federal Reserve Vice Chair Janet Yellen went even further on November 13 when she spoke at length on the topic, describing the “big role” Fed communication plays now that interest rates are near zero. Yellen was appointed by Bernanke in 2010 to head a new FOMC communication subcommittee. Also, a January 2013 article posted on the American Enterprise Institute’s website states, “a favorable judgment can be rendered already on the changes the Fed has made in how it communicates with the public about monetary policy” and “these changes in communication are here to stay, and together they represent an important accomplishment for the Bernanke Fed.”

The views expressed in this post are those of the author and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the author.

Amy Farber is a research librarian in the Federal Reserve Bank of New York’s Research and Statistics Group.

Posted by Blog Author at 07:00:00 AM in Historical Echoes

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