Fedspeak: Complex Monetary Policy Spawns Flights of Metaphors

Manila Bulletin, July 6, 2013 | Go to article overview

Fedspeak: Complex Monetary Policy Spawns Flights of Metaphors


At a news conference in mid-June, Federal Reserve Chairman Ben Bernanke struggled to explain what the Fed is trying to do, attempting this metaphor: "We're going to be shifting the mix of our tools as we try to land the ship in a smooth way onto the aircraft carrier."

He then turned to automobiles, a favorite of central bankers. Trying to distinguish between reducing the Fed's monthly bond-buying and raising short-term interest rates, he said the former is "akin to letting up a bit on the gas pedal as the car picks up speed" while the latter is "beginning to apply the brakes."

There is a long tradition of explaining complex monetary policy with metaphors. Back in 1955, in a speech littered with analogies to driving, bomb shelters and school exams, then Fed Chairman William McChesney Martin made popular the line that the duty of the Fed was to take away the punch bowl just as the party gets good.

Central bankers are partial to plumbing, often talking about the flow of credit, the spigot and liquidity.

They traffic in aircraft references, too. Former Fed Chairman Alan Greenspan and his lieutenants in the 1990s referred incessantly to "headwinds" the economy was fighting, a word Mr. Bernanke had used from time to time. Nobel Laureate Milton Friedman once said the Fed could fight deflation by throwing money from a helicopter. Mr. Bernanke made a passing reference to that several years ago and was ridiculed as "Helicopter Ben."

After Mr. Bernanke's recent difficulty in explaining what the Fed is planning, several of his colleagues made their own attempts. Atlanta Federal Reserve Bank President Dennis Lockhart explained that Mr. Bernanke was talking about using a nicotine patch and markets reacted as if he wanted to go cold turkey. And Jeffrey Lacker of the Richmond Fed said the Fed is "continuing to spike the punch, though at a decreasing rate over the next year."

"I try to be really careful about metaphors," Mr. Lacker says. "I don't want to overuse them because it gets confusing, because too many metaphors just sort of--spoils the broth," he says, then pauses, laughs and asks, "Is that a metaphor?"

The president of the Dallas Fed, Richard Fisher, is a font of analogies and puns. He has used boats and Shakespeare--as part of the same analogy--as well as cocaine, gastric bypass surgery and the actress Scarlett Johansson ("The Houston and Austin and Dallas commercial real estate markets are hotter than Scarlett Johansson.")

In a December 2012 speech in Gainesville, Texas, Mr. Fisher turned to animal husbandry to describe why uncertainty was leading businesses to hold on to its cash instead of investing it. His ranch in East Texas he said, is home to a 2,200-pound breeding bull named "Too Big To Fail."

"Now, Too Big has plenty of liquidity at his disposal; he's fully equipped to do what we want him to do," Mr. …

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