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Good communication is good policy

On Wednesday, the Federal Open Market Committee will vote on monetary policy. Afterward, they will release a brief statement on the decision along with forecasts from Fed officials. Then there’s a press conference with Fed Chair Jay Powell.

The press conference is the most informative. And it covers more ground than the statement or the forecasts. Here’s a word cloud of Powell’s opening remarks in May. Surprised that “inflation” got the most mentions? Nope. Nice to see “will” in second.

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The start of that press conference was unusual:

Before I go into the details of today’s meeting, I’d like to take this opportunity to speak directly to the American people.
Inflation is much too high, and we understand the hardship it is causing, and we’re moving expeditiously to bring it back down. We have both the tools we need and the resolve that it will take to restore price stability on behalf of American families and businesses. The economy and the country have been through a lot over the past two years and have proved resilient. It is essential that we bring inflation down if we are to have a sustained period of strong labor market conditions that benefit all.

That surprised many Fed watchers. I heard someone say it was a “political stunt” with Powell trying to curry favor with President Biden, who reappointed him. No, Jay is sincere. High inflation hurts people, and it’s people who the Fed serves.

See, I told you press conferences were worth watching. Of course, there’s monetary policy too. Tune in next Wednesday at 2:30 pm ET.

The rest of my post is for paid subscribers only.

I discuss Fed communication using the taper tantrum as a case study and drawing on recent research. Together, these show how powerful the press conference is. I also share my what-to-watch next week in the Summary of Economic Projections and the ‘dot plot.’

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Stay-At-Home Macro

Fed Chair Powell's press conference is your…

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