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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

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
, 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
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
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
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
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.

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