One theme in the November FOMC minutes less likely to get press attention is the number of times mention was made of the Fed's concern about its communications efforts. In fact, the minutes reflect that the meeting actually began with a discussion and review of the Committee's communication guidelines and efforts to ensure that its policies are well articulated while maintaining confidentiality. These are actually code words for concern that FOMC participants may have been talking too much and revealing too much about the FOMC's deliberations.
This November discussion came on the heels of the October 15th teleconference, also reported at the end of the minutes. At that time the FOMC discussed not only its communications efforts, including whether more frequent press conferences would be appropriate. Additionally, and perhaps more importantly, it also clearly focused on possible security purchases and other related policy options that set the stage for the Nov. 3 QE II decision. This confirms that the resumption of quantitative easing was discussed long before the actual FOMC meeting.
Finally, it is noteworthy that Vice Chair Yellen agreed to put together a group to conduct a communications review. This focus on communications is not new. Previous Vice Chairs – both Ferguson and Kohn – engaged in similar exercises. Their efforts were, however, rather superficial and concentrated more on what kinds of information should be contained in the press release following each FOMC meeting. For example, should the Committee simply indicate what the decision was, or provide additional information such as a balance of risks statement? And, should the Committee attempt to provide forward-looking guidance to better inform markets about the likelihood of future policy moves? Neither of these efforts took a serious, hard look at the deeper and important questions that surround policy communications.
There are several fundamental questions that need to be addressed before an effective communications policy can be crafted. To whom, for example, is the Committee trying to communicate? Is it the press, Wall Street, investors, politicians, the general public, or all of the above? What does each of these potential information consumers need and would like to know? It seems clear, for example, that investors and market participants have different, deeper, and more nuanced set of needs than the general public. What is the best way to address each of the relevant constituent’s information needs? Press conferences may help some, but more frequent and detailed forecasts, such as those provided by the Bank of England, may be more germane to others.
Right now, the Committee's main communications include: a brief, "one-size-fits-all" press statement of policy followed after a three-week delay by more-detailed summary minutes, a series of speeches by FOMC members that may or may not all be on message, and speeches and occasional congressional testimony by the Chairman and other Board members. In addition to focusing on the issues raised above, it would also be useful for Vice Chair Yellen’s new subcommittee to reach out to and consult with the various constituencies that have been identified, to ascertain their informational needs and preferences. The subcommittee may learn something that could significantly shape what they ultimately recommend. What should be obvious to all at this point is that the present communications strategy is fraught with difficulties and has led to fits and starts as members have serially experimented with alternative communications efforts.
In the end, of course, confidentiality and sanctity of the FOMC discussions should be maintained, and the ability of FOMC participants to express their views and opinions freely during meetings should be jealously protected. Televising the meetings, for example, would stifle discussion and lead to theater rather than thoughtful exchanges. What is not needed, however, is minor tweaking of the press release and another superficial effort to address the problem.