Fed Speak
“What? What did you just say? It sounded like a whole lot of something without actually saying anything...like Fed speak!” Remember Newspeak in 1984?
Fed speak is a term that refers to saying a lot of words without actually communicating a clear or coherent message. The listener is getting a lot of words to parse, but ends up with little take-away as far as actual thoughts go. Fed speak became a thing after many years of the Fed’s Chairman, Alan Greenspan, danced his wordy dance, ambiguously saying and not-saying things.
While Fed speak might seem annoying or deflective (like when politicians “answer” questions without answering them at all), many economists and analysts agree that ol’ Al may have had some justification in being so ambiguous.
You see, the Fed is in the business of managing expectations to manage the economy. So much of the economy depends on whether people feel spend-happy or fearful and save-ful, which includes what the Fed is up to. By saying things (and not really saying things) tall Al was probably trying to avoid jerky market motions that would inevitably follow any big “hey world, this is what the Fed is doing right now…” public remarks.
Since Greenspan’s 20-year Chair career from 1986 to 2006, Fed Chairs have done the opposite, giving clear “giveaway” statements in as few words as possible...which, inevitably, affect markets directly. You can bet all those algorithms, Wall Streeters, and the world at large are keeping their ears perked for those snappy, market-jolting, future-telling Fed Chair statements. Sorry, Al.
Related or Semi-related Video
Finance: What is the Federal Funds Rate?22 Views
Finance a la shmoop what is the federal funds rate? all right think about it like
a suggested tip amount at a restaurant or on uber or lyft and you're going to [Man stood outside Pete's Pizza store]
gauge how your waiter or driver will react to that number
warmly coldly or well that's basically what the federal funds rates intentions
are as it relates to heating up or cooling down the economy well the Fed
heats and cools via the manner in which it rents money to its henchmen, the US
banking system that is in the most basic vanilla transaction the Fed rents money [Briefcase of cash lands outside Federal State building]
to banks for 1% a year and those banks then turn around and market that
money in the form of loans for homes and cars and re rents
that money with a big fat markup at three four five six seven eight percent
or more well a fair number of deadbeats exist on the planet they don't pay back [people appear all across a map of earth]
the money they promised to pay back and while sometimes the bank has to eat the
dough they loaned or at least incur a lot of lawyer bills chasing down the [Lawyer chasing man in a car]
deadbeats and in the event of a calamitous economic situation well,
banks need to be rock-solid so they can't lend out every dollar they have
that is they have to keep a fair amount of equity on their books so that if bad
things really do happen then they have what are called reserves well the bank [Bank reserve vault of cash appears]
also keeps reserves for direct daily deposits so that someday when a bunch of
people come in for their cash the bank can't turn their pockets inside out and [Person turns pocket inside out]
say yeah sorry we gave it all to the nice man wanting to buy a sports car
well that kind of thing leads to panic and disaster and it has sadly in our
country's history when a third of the banks went bankrupt in the Great
Depression so what happens when a bank has less money than it legally needs to
have as a reserve? well it borrows money in a short-term overnight loan from
either the Federal Reserve Bank or from other banks that keep their own reserves [Money transfers from Federal Reserve to bank]
at the Federal Reserve sort of like borrowing from Peter to pay Paul keeping
all that reserve grid number uh steady all right well now
we all know that borrowing money is not free
if a bank borrows overnight from other banks it is charged an interest rate at
the current federal funds rate the Federal Reserve influences that rate
while banks just need to be careful about paying back those loans because
stiffing the Fed is significantly more dangerous to your life than
sniffing your waiter at Applebee's [Object hits man outside Applebee's]
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