Comment by setgree | Hacker News Reader

Comment by setgree | Hacker News Reader

Why does the Fed write the way it does?

First, this article buries the lede. The first seven sentences are framing. Only sentences 8-9 are actually news. The next four are, again, context. The headline also does not actually say what happened.

Second, of the fourteen sentences here, a full six are trivially true -- "The Committee is highly attentive to inflation risks. The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run." & everything from "The Committee is strongly committed to returning inflation to its 2 percent objective" through "The Committee's assessments will take into account a wide range of information". These are all obvious and don't add any actual information -- or maybe they do and it requires more cultural knowledge than I possess to read between the lines?

Third, use of jargon, e.g. "Recent indicators of spending and production have softened". WTH does 'softened' mean? From context, I'm guessing it means "show evidence of decelerating growth." Why not just say that?

Fourth, hyperlinks? references? Why not provide links to the economic data that's informing the decision?

Molly Young has a great article called "Why do cdorporations speak the way they do?" [0] that provides a compelling account of exactly that. Do we have something similar for the Fed? Or for bureaucracies in general?

[0] https://www.vulture.com/2020/02/spread-of-corporate-speak.ht...

"Tell me you were too young to remember Alan Greenspan without telling me that"

The Fed has always shied away from saying things too bluntly, and preferred to deal with wishy washy code words. If it ever says something bluntly you know they really mean it. Something like "softened" is a deliberately ambiguous phrase designed to acknowledge the reality that they're declining without causing panic, by being uncertain and sounding not terribly bad. You're supposed to wonder what that means and argue about it, so the markets don't bolt one way or the other.

If you look up the history of Alan Greenspan ("The Maestro") and the way that investors in 2003 watched for the changes in single words from meeting to meeting from the Fed, so that he never startled the emotionally delicate markets you'll see there's a long history of this kind of language.

Also it kind of scares the crap out of me that they're bumping rates by 75 basis points every meeting. If you understand how much Greenspan was walking on eggshells back in 2003, they're fucking screaming right now by their actions that they're going to plunge the economy into a recession in order to get wage growth and unionization under control.

How does an interest increase influence unionization?

Ultimately by creating a recession and rising unemployment and desperation in the working class.

The more leverage labor has, the harder union-busting is, generally, because labor rights enforcement is...decidedly spotty, but witholding labor, or even making your firm less attractive to applicants, in a tight labor market is highly effective whether or not the state is enforcing labor rights.

Interest rate hikes slow the economy and reduce labor demand and leverage.

Raising interest rates can crash the economy resulting in higher unemployment. Higher unemployment means less bargaining power for workers, of which includes union strength.

I'm not much for conspiracy theories but it's hard to not fixate on the sequence of events here. The past year or two is the only time in my lifetime that workers have seen their market power increase significantly, and it's being quickly followed up by moves that will likely crash the economy and will certainly decrease labor's bargaining power.

Oil is down 20% from June, so it's likely we'll have somewhat tapered inflation next CPI. Current best estimate for FOMC meeting 6 weeks from now is a 50 bps raise, and then two more 25 bps raise to end the year at 3.25%. Sounds reasonable to me.

Over the course of 2 years from 2004 to 2006 the fed raised interest rates by 425bp which ultimately popped the housing bubble. In less than a year the Fed will have increased rates by 325bp in your scenario, and there's no indication by the Fed that they're going to slow down that much, and currently no indication that inflation will hit their 2% target rate. And they're more concerned with core CPI running around 6% than the price of food and energy, so oil coming off its highs doesn't actually mean that much to policy (and you can't even see the last commodities boom when oil went to $100/bbl in the core-CPI readings from that time -- the rise in oil prices didn't cause the core CPI increase, so falling oil prices won't reverse it). And I think the markets are underestimating how much they'll hike rates to close out the year. If core CPI remains elevated even as oil comes off its highs then they could at least do 3 more 50bp hikes to close out the year.

> And they're more concerned with core CPI running around 6% than the price of food and energy, so oil coming off its highs doesn't actually mean that much to policy

Energy, as well as being a CPI component itself, is a key production input and has outsize effects on prices across the board (though that effect is smoothed compared to immediate energy costs); if energy costs have peaked (and not just seeing a downward fluctuation over the last month or so), then that itself is going to be a huge brake on core inflation.

Here's a good example of how the Fed language causes debate. From Paul Krugman:

> Well, we’ll have to wait and see. The good news is that policymakers appear willing to do just that. From my point of view, the most encouraging aspect of the Fed’s statement on Wednesday was the paragraph declaring that the committee setting monetary policy is prepared to be flexible, that it “will continue to monitor the implications of incoming information” and “would be prepared to adjust the stance of monetary policy as appropriate.” That’s a not-too-subtle rejection of demands from inflation hawks that the Fed commit itself now now now to a long period of extremely tight money.

https://www.nytimes.com/2022/07/28/opinion/recession-inflati...

My reading of that language, on the other hand, is that its pretty tepid and just what would be expected, and that the Fed not actually coming out with the most hard-line language possible is not worth much. It still suggests that they'll stick to their guns until they see a considerable amount of change in the data. I'm drawn more to the single blunt sentences which are "The Committee is highly attentive to inflation risks" and "The Committee is strongly committed to returning inflation to its 2 percent objective" which are two pretty harsh statements that they terminated paragraphs with that I think signal their overriding concerns.

Given that I think that they'll wait until they see clear changes in the data, and given that I think that the foundations of the economy are vulnerable to shocks and I'm expecting at least a commercial real estate implosion to go off once everything gets "stress tested" by higher rates, I am not anywhere near as hopeful as Krugman.

The fact that people can get such wildly different takes out of the Fed language is a feature, not a bug.

I'm over here building a nuclear fallout shelter, Krugman is in la-la land thinking its all coming up roses, we're both reading the same announcement, yet nothing in the Fed announcement is wrong or false.

Because they aren't writing for a general audience. They're writing for an academic, professional finance, and governmental audience. It's extremely relevant that their word choice is being scrutinized for suggestions of what their future policy will be. Similarly, their use of jargon would be well understood by their audience. Context matters in communication.

You could consider this almost ritualized. That's something very different than corporate doublespeak that seeks to obscure rather than inform.

Second, of the fourteen sentences here, a full six are trivially true

None of those things are trivially true to people who regularly post contrarian and/or conspiracy theory takes about the fed on this very web site. It makes sense for the fed to restate these "trivial" matters rather than ceding the discussion to "alternative" facts spread by contrarians.

I meant that they are trivially true in the sense that they, e.g.,

* restate the fed's mandate to keep to full employment

* say that the fed will consult many sources when it makes its verdicts (I should hope so!!)

* say that their verdict might change if they get new input or new guidance

Surely even a true dissident on monetary matters would still acknowledge that the fed's mandate says what it says?

Here's an example of what I mean. The article states "The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run."

Someone on this thread stated the interests rates are actually being raised because the committee seeks to crush unions.

So if that "obvious" sentence was removed I'd only be hearing one side of the story if I read the poster's take and the attached press release.

Ah so this might be non-obvious context — the fed’s mandate is 1) maximum employment and 2) stable prices, which the Fed has, historically, defined as 2%. So saying this in the press release is basically like if i restated my company’s publicly known OKRs every time I made an announcement.

More on the mandate: https://www.brookings.edu/blog/up-front/2022/02/23/how-does-...

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