Thank you, Mr. Chairman. I’ll be referring to the materials that were at your seats when you came in, but you also received a copy of these materials from me last Thursday. Please bear with me, but I’d like to begin on a note of parliamentary procedure. It seemed to stretch to the breaking point any interpretation of the Committee's rules to argue that members and their alternates could gather to discuss its communication policies outside a formal meeting. The choice, then, was to view this as an intermeeting consultation or an early start of the September 16 meeting. If we had done the latter, our customary procedures would seem to involve informing the press tomorrow morning that the meeting had actually started early, risking the building-up of expectations that a major change in your communication policy was brewing. We opted for the former because it permits an ex post announcement of the meeting with the release of the minutes for the August meeting on Thursday. To do this, we will circulate a draft summary of this meeting to you tomorrow for inclusion in the minutes.
I shall focus the bulk of my remarks on what appears to be many members' immediate concern: the drafting and the content of the announcement. Those concerns have arisen, in part, because there have been notable changes in the announcement over the past four meetings. To facilitate your discussion on the subject, my briefing will have four parts. First, I will offer five general principles that the Committee may wish to weigh in choosing an announcement policy. Second, I will review precedents established by the experience of foreign central banks and the Committee’s own history. Third, I will suggest some options you might want to consider on how to proceed with regard both to the process of preparing the announcement and to the substance of the announcement. As to the latter, I will then address some specific aspects of the language of the announcement, trying to keep the discussion general enough to be appropriate for this evening’s discussion of the
Committee’s procedures rather than tomorrow’s meeting on policy choice.
Since February 4, 1994, the Committee’s discussion of communications with the private sector has centered on the announcements of its actions. I’d note that the first few such releases were explicitly billed as statements of the Chairman explaining the Committee’s action. After mid-1994, though, this distinction disappeared. I am going to assert that five principles governing the process of producing the statement seem part of the received wisdom (or revealed preference) of the Committee, which I list in exhibit 1.
First, the process should respect the important role of discussion at the meeting. To circulate a single prospective draft announcement or several proposed alternatives that isolate a limited number of the current features of the economy before members have discussed their views of economic conditions and monetary policy generally might stifle that discussion. At the same time, it is hard to imagine how nineteen people around the Committee table could constructively edit a draft release after their deliberations. The most repeated sentiment across the past nine years of transcripts is that group editing cannot arrive at an acceptable result.
Part of the worry, as in my second point, is that the Committee has not seemed to want to complicate the forging of consensus on policy action. While words are important, it is only because investors have come to expect them to be acted upon consistently. The risk is that some disagreement in the future about a subordinate clause in the fourth sentence of a draft release might cause a rift among members who otherwise might agree on the policy action if not the exact words to describe its rationale. The events of this summer have shown that the words of the announcement can be powerful.
My third observation is that you might want to take the opportunity that this potential influence provides to increase the effectiveness of your policy actions. To settle on a stripped-down announcement because it is hard to compromise on anything more specific might represent an admission that the Committee is unable to use a potentially important instrument at its disposal.
Fourth, the Committee surely wants to avoid mistakes. From my experience, drafting a press release shares some similarity with juggling chainsaws, in that you mostly spend your time worrying about what can go wrong and then counting your digits when you’re done. The less the time and the greater the number of last-minute changes, the more likely there will be mistakes.
Fifth, and this almost goes without saying, everyone should want to preserve the confidentiality of the Committee’s decision until its release. I would not have raised this but for the fact that just in the past year there have been several instances in which we have read about the Committee’s deliberations in newsletters less than twenty-four hours after the fact. Given that reality, the longer the time between the decision and the announcement, the more likely it may become that there will be
leaks, either inadvertent or otherwise.
In light of these five principles, the Committee might want to consider the five models for drafting an announcement presented in exhibit 2. Some members might consider the experience immediately prior to the introduction of announcements on February 4, 1994, as relevant to today’s discussion. In those days, the Committee’s decisions were signaled to markets through open market operations, and only those associated with changes in the discount rate were announced to the public. Except for discussions about the wording of the directive, which was released with a lag, concerns about words did not intrude on deliberations. However, the Committee did forgo a means of communicating with the public. A variant on this that you might find appealing would be to release information limited to the Committee’s policy decision—the intended funds rate, perhaps a simple risk assessment, and the breakdown of the votes. The Committee would have to weigh whatever benefits are seen accruing to its deliberations against a variety of costs, not the least including the likely criticism that would be levied at perceived backsliding in transparency.
The Committee might hope to avoid heavy criticism of a reduction in the information content of its policy announcement by following the example of the Bank of England listed in the second row. The Monetary Policy Committee releases a short and direct announcement with its action and defers a more complete explanation until the publication of its minutes about two weeks after its meeting. While stripping the announcement of content beyond the policy action and, perhaps, a brief risk assessment might seem a step backward on the communication front, the quicker release of the minutes would provide a more nuanced description of policy choice than can be done even in the current statement. That is why I placed a question mark in the appropriate box in the third column on communications. I’m a bit more confident that the expedited production of the minutes introduces a greater risk of error. Because the minutes would be released while the circumstances they described were still relevant, market participants would likely pay considerably more attention to them than they do now. That raises the odds that news reports would latch onto any differences of opinion that were highlighted or aspects of the outlook perhaps underappreciated by the drafters and reviewers in the short window available to prepare the document. As a consequence, the attention members pay to draft minutes and probably the number of iterations in the drafting process will have to be stepped up, with obvious implications for the schedules of nineteen busy people.
If the Committee decided it was important that its announcement be accompanied by a more complete justification, it might consider the example provided by the Bank of Canada. As shown in the third row, policymakers at the Bank of Canada deliberate on rate-setting and then draft the statement after the policy decision. In their case, this means delaying the announcement until just before the opening of trading the next day. By pushing your announcement past 2:15 p.m., you might accommodate a drafting session after your policy decision so as to release an announcement the same day. That has advantages, in that the Committee’s announcement would reflect its complete deliberations. However, an enhanced emphasis on the words of the announcement could raise the odds that words would interfere with the Committee’s achieving a consensus. Even more problematic, drafting on the fly risks making mistakes, and lengthening the time between the decision and its announcement raises the unwelcome specter of leaks.
The Federal Reserve’s experience of the 1980s provides another model, shown in the fourth row. At that time, the directive to the Account Manager contained standardized concerns about the economy, but their order varied with circumstances. The Bluebook distributed to the Committee before the meeting discussed possible alternative orderings to give members a sense of likely possibilities. In current circumstances, the staff could identify potential themes for the description of the economy in the first full paragraph of the announcement consistent with the policy alternatives presented in the Bluebook (as we did in the section titled “Policy Announcement, Directive, and Assessment of Risks” in the most recent one). As a further step, the Committee could standardize the language of its risk assessment in the second full paragraph so that it would vote on what was to appear in the announcement. In circumstances when a more substantive change in the announcement was contemplated—say, as in March or May of this year—a memo could be circulated in advance of the meeting no later than on Monday afternoon. Given these indications of what would appear in the announcement, members might be more willing to defer consideration of the specific words until after the vote on the rate decision and the risk assessment. Putting consideration of the words of the announcement into play in advance of the vote on policy might complicate forging a consensus, and routinizing the form of the risk assessment might limit its effectiveness in communicating with the public. However, the Committee may well view doing both as a reasonable compromise to ensure that its decisions are based on full and complete information. This being the Federal Reserve, maintaining the status quo is always an option. The Committee could routinely review a prepared draft statement after the policy decision, with the advantages and disadvantages noted in the bottom row.
As to process going forward, of these five possibilities, implementing the models of your Anglo-Saxon counterparts would probably require the most lead time. If you decide to emulate the Bank of England, the Secretariat will have to speed up its drafting schedule, which may take a meeting or two to implement. If you opt for the Bank of Canada model, market participants would have to be given some advance warning that the announcement would be delayed past 2:15 p.m., perhaps in the minutes that will be released this Thursday.
Of course, the Committee could abandon or sharply reduce the content of the statement at any time—it is only a matter of deciding when you are best positioned to accept the criticism that may well follow. The rapidity with which you can make the risk assessment more routine so that you could vote on what is published (as in the fourth row) depends on whether you are comfortable with the current three-part structure that was adopted in May. That is the first of several questions about the content of the announcement that are flagged in your final exhibit. Again, are you satisfied with a three-part assessment that individually lists the relative threats to your goals of maximum sustainable economic growth and price stability and that weight those threats in an overall balance? The decision in May to split the old balance-of- risk assessment into the first two components has seemed to serve the Committee well, as it appears now to cover all the relevant possibilities confronting the economy. But members have expressed differing opinions on the wisdom of then combining the two different judgments in the third sentence.
Individual words in the announcement also seem to have taken on different meanings for different members at different times. In particular, as in the second question, the Committee may want to settle on what it means by “sustainable” economic growth. In the report of the Ferguson subcommittee in 2000, sustainable growth seemed to serve as a stand-in for expansion at the growth rate of the economy’s potential to produce. In more-recent announcements, the same words may be read to imply the growth pace consistent with avoiding the creation of economic imbalances, thereby implicitly introducing a notion of the level of economic activity relative to the level of its potential. Members might also have concerns about whether the word “risk” carries negative connotations that might be avoided by speaking of the balance of probabilities or the odds of outcomes on both sides of their median forecast. Fourth, Committee members may have doubts concerning whether the “foreseeable” future is too slippery a concept to provide guidance to the public as to its view of the outlook. But being specific about that time dimension now may limit your options at a later date. Similar concerns may also be raised about “the considerable period of time” in the last sentence of the August announcement, which concludes my list of questions. I won’t speak about this issue beyond that because it seems woven inextricably into the policy debate scheduled for tomorrow and is unlikely to be a long-lasting feature of the announcement.
These may be too many options to tackle at once. One strategy would be to identify your main areas of concern and pick them off one by one in an incremental approach over time. Another would be to use this meeting to identify problems and charge the staff or a subcommittee to come back at a later date with more specific alternatives. Doing so, however, may delay progress in improving the announcement for a time. As to other issues not directly related to the announcement, the first day of next January’s two-day meeting has been reserved to talk about the Committee’s communication policy once again.