Fedspeak

By THE DATA TEAM

IN George Orwell’s "1984

"

, there was "oldspeak", "duckspeak", "doublespeak" and "newspeak". In modern central banking, there is "Fedspeak". One of the Federal Reserve’s principal means of communicating its views on monetary policy is to issue a press statement after its regular Federal Open Market Committee (FOMC) policy meetings. These statements have become longer and more complex, according to a recent report by Rubén Hernández-Murillo and Hannah Shell of the Federal Reserve Bank of St Louis,

perhaps contradicting their original purpose.

The authors use the Flesch-Kincaid grade level, which evaluates how difficult a passage is to read based on sentence length and the number of syllables per word. The score itself corresponds to the number of years of education (in terms of American grade levels) you would need to understand the text. Statements made by the FOMC during the

notoriously

verbose Alan Greenspan’s tenure as chairman were in fact rather concise—on average, they were just 210 words, with a reading level of 13.6, suitable for second-year university students.

A noticeable uptick in the complexity of the FOMC statements occurred shortly after the Fed announced the start of quantitative easing in late 2008. As its balance-sheet ballooned, so too did the length of its press statements. Twice during this period the Flesch-Kincaid reading level reached 20, suggesting that Fed-watchers would need four years of postgraduate education just to parse what was going on—an onerous hurdle for a press statement that is meant to inform the public. (No such pattern is discernible for the European Central Bank, whose press statements have maintained a consistent undergraduate reading level of around 14 over the past decade.) More clarity may be on the way. On October 29th the Federal Reserve announced that it would end its bond-purchasing programme. The statement associated with that decision had a reading score of just 17, the lowest in nearly two years. Optimists interpret the change to mean that the economy is turning doubleplusgood.