Fed

Kansas City Fed bankers answer questions from kids to spread the word about the bank

A superb, awareness-raising initiative by the Kansas City Fed designed to engage a diverse audience, be it a Fed watcher or someone how knows little about the US central bank: Kids Ask the KC Fed.

The series of short interviews are based on questions children have asked when visiting the Kansas City Fed. The questions—asked by a child host to a Kansas City Fed employee—focus either on a particular job or an aspect related to the Bank’s work or both.

In Episode 1, a schoolgirl asks Esther George, KC Fed President, obvious questions, such as "What does a Federal Reserve Bank president do?” or “What’s your favorite thing to do at work?”.

Worth watching, or following as a role model.

Future of monetary policy communication: Open, clear, explanatory, and aimed at public

Alan S. Blinder, a Princeton University scholar and former Fed official, has made a couple of predictions on the future of monetary policy communication for the next few years. His academic account to a large extent fits my perceptions of the general trend in central banking communication, based on my practical experience with central banks modernizing their policy frameworks. Below I quote, and comment on, two of the Blinder’s six predictions.

Blinder’s prediction # 1: Transparency about monetary policy will increase over time.

Blinder: “I feel confident in predicting this as a generic statement, although the pace and details will vary from one central bank to the next. After all, some are extremely transparent already, while others are less so. But virtually all central banks have been moving in one direction in recent decades--toward greater openness--and I don’t believe that process is over. This prediction derives in part from pretty strong historical evidence that transparency is a one-way street: Once a central bank moves toward greater transparency in some dimension, it never reverts back to its old, less-transparent ways.”

My comment: There is indeed a global trend among central banks towards greater openness, and it is particularly visible in currently less transparent central banks of many low income and developing countries. As soon as a central bank modernizes and aims to become more forward-looking in policymaking, increasing policy and economic transparency becomes necessary. The only detail I would dispute is that there “never” is a way back once a central bank opens up. As illustrated by the recent case of the Czech National Bank, a temporary restriction on transparency, at the very least, remains a viable option at policymakers’ disposal should they decide so in the interest of their policy effectiveness.

Blinder’s prediction # 4: Central banks will keep trying to communicate with the general public, as they should. But for the most part, they will fail.

Blinder: “Much as we may believe that an independent central bank in a democracy should communicate with the citizenry, only a tiny fraction of the citizenry will tune in … You speak one way if you are addressing experts who understand the jargon and dote on every word, quite another if you are talking to members of the broad public who lack both expertise and interest and who are half-listening at best. I am a big believer in democratic accountability, which requires communicating with the broad public. But in truth, the part of central bank communication that matters most is the way policymakers communicate with markets—and for a simple reason: Market participants listen.”

My comment: Here Blinder has a point. As marketing guru Seth Godin has put it, nowadays “there's so much noise, so much clutter... that hoping that (people will) listen closely and carefully enough to figure out what you mean is a recipe for frustration.” And Godin offers a simple alternative: “Maybe, instead of insisting that people listen more closely, you could speak more clearly.” This is exactly what most advanced central banks, with those less advanced in their wake, have been painstakingly striving for: Use as plain and clear language as possible to explain themselves. As Blinder concludes: “It’s high time that central banks, which have travelled a long way down the communications road already, cease viewing words as scarce commodities to be given only grudgingly. Montagu Norman was wrong; they should explain.” Indeed, gone are the days of Montagu Norman, the Governor of the Bank of England from 1920 to 1944, who is often cited as saying that the role of a central banker was: “Never explain, never apologize”.


Blinder made the predictions in a paper titled “Through a Crystal Ball Darkly: The Future of Monetary Policy Communication”, prepared for the Annual Meetings of the American Economic Association, Philadelphia, January 6, 2017.

Speaking to public in plain and concise form promoted at all star central bank conference

The world’s top central banks have taken their fair share of criticism not only for adopting unconventional policies following the financial crisis but also for failing to explain the unorthodox measures they were taking in language that could be understood by the general public. It is clear they have learned the lesson from that.

Following are a couple of takeaways I made from watching the world’s leading policymakers discuss central bank communications at a recent all-star conference on this topic at the European Central Bank.

  • Major central banks such as the Federal Reserve, ECB, Bank of England and Bank of Japan clearly understand that they need to be clearly understood to influence public expectations and remain credible. Code words and convoluted language have fallen out of fashion. Plain talk in simple language is the new trick of the trade.
  • Despite the push for greater transparency and clarity in communications, policymakers — constantly faced with a wide array of economic uncertainties — are unlikely to provide the degree of certainty on the future policy path that markets have generally been longing for.
  • To make complex forecast and policy messages accessible to the wider public, central banks increasingly tailor the content of their pronouncements to the requirements of each communication tool they are using, and to the audience watching that particular channel of communication. The BoE has dubbed this technique “layering”.
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Below is a selection of key quotes from a policy panel debate — led by Bank of England’s Mark Carney, ECB’s Mario Draghi, Bank of Japan’s Haruhiko Kuroda, and Federal Reserve’s Janet Yellen — that I personally considered in any way interesting and inspiring:

Haruhiko Kuroda, Bank of Japan

“Communication is not a matter of technique … it is a matter of policy itself. From my experience in the last 4-1/2 years, the best communication policy is to explain in straight words the content and intent of your monetary policy which can be understood not just by monetary experts and economists, but also the general public.”

Janet Yellen, Federal Reserve

“We try not only to explain what changed about the economic outlook that justified (our policy action) but also the objectives we are trying to achieve. For the broader public, as opposed to market participants, the most important thing to know is what it is that we are trying to achieve?

They do want to know that we are committed to our 2 percent inflation objective, that we want to achieve our employment mandate. We will readjust these (policy) instruments as we think necessary in light of those policy goals, that’s are our commitment.

But I do think that market participants are looking for greater certainty about the policy path than central bankers believe is appropriate to offer most of the time.”

Mark Carney, Bank of England

“Look at what we put out: a 50-page Inflation Report, we still communicate in 15-page speeches with lots of charts, expert audiences read them, understand, digest, respond to them, that’s true, but that’s not the way to communicate with the general public. This is not a sustainable form of communicating in a world that has had enough of experts, it is also not consistent with how people access information.

(To make information accessible), you have to change the content. What we have tried to do … is to layer the content, so you have a very simple message that is tweet-able, that can go out on whatever decision is made… and to take a 50-page Inflation Report and reduce it down to a relatively simple narrative with icons, key charts that explain why we did what we did, and then to use multiple channels in order for that to get out.

In order to be as effective as possible on speaking with the broader public and actually ultimately getting to a dialog as opposed to a monolog with them, we need different channels, we need different content, but we need that change within the institution, and you only get that if you open it up to a broader number of people that just those at the top.”

'The Old Lady of Threadneedle Street' at forefront of embracing new media

In yet another sign of central banks tailoring their ways of communicating to the new media, the 'The Old Lady of Threadneedle Street' invited members of the public to pose questions to one of the Bank of England’s policymakers on Twitter.

One particular question stood out, in my view, demonstrating the public’s increasing appetite for visual communications by central banks, which is an area where these traditionally text- and spreadsheet-based institutions have lagged behind:

Despite being quite well ahead of many other central banks, the Bank of England is still trailing its U.S. counterpart. At the Federal Reserve, some policymakers, notably Minneapolis Fed President Neel Kashkari, have extensively used social media accounts and blog posts to reach out directly to their audiences.

Chicago Fed lets people create their own currency in a bold move

You can now put yourself on a U.S. dollar. The Federal Reserve Bank of Chicago went as far as to create a special app for iPhone or iPad to allow people to put their own face on a bill.

The Chicago Fed app is part of a wave of entertaining online tools developed by central banks globally to help educate people about complex central banking matters. In this particular case, the idea is to help people learn some interesting things about the security features on currency.

Quite a courageous move by the Chicago Fed. I could very well imagine a central bank being either outright legally prohibited or simply too conservative and unwilling to allow users manipulate banknotes in such way, even on an smartphone screen.

Central bankers ignore public speaking rehearsals at their own peril

An important tidbit of information from this week’s post-FMOC press conference:

Fed Chair Janet Yellen clearly was well prepared to face journalists' questions about the U.S. election, and Donald Trump in particular. As an eagle-eye journalist pointed out, Yellen was apparently reading from a prepared statement when answering a question whether the Fed was keeping interest rates artificially low to support the Obama administration, as the Republican presidential nominee has charged.

United States Federal Reserve Chair Janet Yellen holds a news conference following the two-day Federal Open Market Committee meeting in Washington, U.S., September 21, 2016. (Reuters picture)

United States Federal Reserve Chair Janet Yellen holds a news conference following the two-day Federal Open Market Committee meeting in Washington, U.S., September 21, 2016. (Reuters picture)

Here is the relevant part of transcript of Chair Yellen’s press conference):

JON HILSENRATH. Jon Hilsenrath, from the Wall Street Journal. Chair Yellen, Donald Trump, the Republican presidential nominee has charged that the Fed is keeping interest rates artificially low to support the Obama administration. I'd like to hear what you have to say to that charge. And on a related note, I wanted to ask you about the Fed's next policy meeting which is in early November a week before the next election, given that the case for raising rates you say today has strengthened, should the public see that November meeting as a live meeting when a rate action could happen? Thank you.

CHAIR YELLEN. Well, I think Congress very wisely established the Federal Reserve is an independent agency in order to insulate monetary policy from short term political pressures. And I can say, emphatically, that partisan politics plays no role in our decisions about the appropriate stance of monetary policy. We are trying to decide what the best policy is to foster price stability and maximum employment and to manage the variety of risks that we see is affecting the outlook. We do not discuss politics at our meetings and we do not take politics into account in our decisions. As I said, we're generally pleased with the progress of the economy. And the decision not to raise rates today and to wait for some further evidence that we're continuing on this course is largely based on the judgment that we're not seeing evidence that the economy is overheating. And that we are seeing evidence that people are being drawn in, in larger numbers than at least I would have expected into the labor market and that that's healthy to continue. But that nevertheless, we do need to be forward looking. And if we continue along this course, it likely will be appropriate to raise the federal funds rate. And November, you asked about as well. Well, every meeting is live and we will again assess as we always do incoming evidence in November and decide whether or not a move is warranted.

When I speak to senior central bankers in various parts of the world — be it Eastern Europe, central Asia, or Africa — I always stress the importance of devoting time and effort to prepare Governors well for public appearances such as press conferences or speeches. A nation’s leading central banker ignores rehearsals ahead of his or her public speaking engagements at their own peril.

Fed Police Officer: 99 percent of our job is communications

Public communications by central banks go far beyond the oft-quoted headlines from speeches delivered by leading policymakers on interest rates and exchange rates.

A story from the Federal Reserve Bank of San Francisco:

A regular fixture in the lobby at SF Fed headquarters, Federal Reserve Police Officer Paul Trotter greets employees and visitors with a crinkle-eyed grin and ready jokes.

“Ninety-nine percent of our job is communications,” says Trotter. “We get a lot of visitors. A lot of school groups. I want to make sure people feel comfortable walking in and seeing the uniform.”

Many members of the public often make their first impressions of a central bank, and its communications, when meeting a police officer guarding the gate or a receptionist recording the visitors' names and directing them to their contacts.

A central bank ignores this important piece of its overall communications puzzle at its own peril.

Youngest regional Fed president adapts central bank communication to social media

Neel Kashkari, President of the Federal Reserve Bank of Minneapolis, is adapting what most of the public views as oft-quirky central bank talk to the social media age.

As reported by Bloomberg:

"For 30 years, or maybe longer, the Fed had adopted this Wizard of Oz posture, that we’re so mysterious, we’re so powerful, don’t ask any questions."

"At the end of the day, we’re here to work on behalf of Main Street."

Kashkari, at 42 the youngest regional Fed bank president, has frequently used his Twitter account to post quick comments and respond to questions.

Recently he set a new communication standard for central bankers by adding an inflation-target emoji to one of his posts:

Revolution in monetary policy?

David Marsh, Managing Director of The Official Monetary and Financial Institutions Forum (OMFIF), on what he dubbed the "monetary about-face" by James Bullard, the hawk-turned-dove St. Louis Federal Reserve Bank president:

James Bullard, St. Louis Fed President

James Bullard, St. Louis Fed President

If other members of the rate-setting Federal Open Market Committee adhere to the St. Louis Fed’s ‘new narrative’, this could mark a revolution in monetary policy.

Janet Yellen, the Fed chair, does not appear to have been consulted about Bullard’s announcement. Although some might believe his radical rethink represents a challenge to her authority, she can take some comfort from the conversion of a one-time hawk to an adherent of her own somewhat dovish stance.

Marsh said Bullard's narrative could seal the "dot plot" chart's fate:

If momentum for the ‘new narrative’ gains ground, Bullard could trigger the dot plot’s demise – a feat in which he would no doubt take quiet pride.

The so-called "dot plot", representing U.S. policymakers' assessment of the future rate path, has been quite often criticized for being misleading, in particular for lacking clarity on uncertainty surrounding the rate projections.

Bullard's presentation of his "new narrative" is available on St. Louis Fed's website.

Chart your own U.S. rate outlook

The Federal Reserve Bank of Cleveland has constructed the projections of federal funds rates from seven simple monetary policy rules, based on three sets of forecasts for economic conditions. The new tool even helps anyone customize their own simple policy rule.

The federal funds rates use forecasts available as of June 23, 2016.

The federal funds rates use forecasts available as of June 23, 2016.

Simple monetary policy rules typically provide a relationship between the central bank’s policy rate ... and a relatively small number of indicators on real economic activity and inflation.

Monetary policymakers often compare and contrast the federal funds rates implied by different simple monetary policy rules, use simple rules as an input in the decision-making process, and use simple rules to help communicate decisions to the public.

One can download the spreadsheet from Cleveland Fed's website to customize their own simple monetary policy rule and economic forecast.

Good stuff.