Fedspeak: Complex Monetary Policy Spawns Flights of Metaphors; Central Bankers Wax Poetic, Invoking Punch Bowls, Bulls and Scarlett Johansson

Updated July 5, 2013, 6:45 a.m. ET

Fedspeak: Complex Monetary Policy Spawns Flights of Metaphors

Central Bankers Wax Poetic, Invoking Punch Bowls, Bulls and Scarlett Johansson


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 Greenspanand 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. Fisher explained. “But if we put him on the opposite side of the fence from those pretty cows, he’s unable to perform. Think of the uncertainty I’ve just spoken of…as a fence,” he said.

“He brought the house down with that one,” said Kent Sharpe, executive director of the Gainesville Economic Development Corp.

Mr. Fisher says someone from a cattle-breeding group wrote him to say “for the first time we understand how monetary policy works.”

“I think you can use [metaphors] in two ways,” Mr. Fisher says. “One is to get people to listen, and the other is to explain policy.”

Because metaphors can be so powerful in shaping public impressions of the Fed, officials sometimes pick them with care.

Minneapolis Fed President Narayana Kocherlakota, for one, objects to colleagues, and reporters, who liken the economy’s reliance on Fed’s easy credit to an addict hooked on drugs.

His more sober reference: A coat. “It’s still wintry conditions. I know it feels like it should be May by now, and we should be able to take off the coat. But we well know in Minneapolis that it doesn’t always happen. And you should keep your coat on when it’s cold out.”

Politicians have been quick to add to the proliferation of metaphors. In May, Rep. Kevin Brady (R., Texas) complained to Mr. Bernanke about the “fragile” condition of the economy: “At this point, the patient ought to be out of the hospital and playing baseball with its kids.”

Sen. Amy Klobuchar (D., Minn.) offered an alternative status report on the economy’s health: “We’re out of intensive care thanks, in part, to the Fed’s actions. And we’re probably out of the hospital. But one of the problems is, because of this brinkmanship that goes on on the Hill here, we keep having to go back to the emergency room.”

All these competing metaphors have, if you will, ruffled some feathers.

“I hate most of these metaphors,” complains Laurence Meyer, a former Fed governor now at forecaster Macroeconomic Advisers. Fed officials should stick to punch bowls and cold turkey, two metaphors he said that “are immediately recognizable and immediately put in the minds of the audience what the [official] is talking about.”

“If you have to think about the metaphor instead of monetary policy than there’s really a communication problem,” he says.

Economists at the Bank for International Settlements apparently agree. The consortium of central banks, which has been skeptical about recent aggressive Fed policies, takes exception to the metaphor that economies, like airplanes, have a “stall speed”—that is, if the economy grows too slowly it’s at risk of falling into recession.

“The economy is self-correcting,” said Wai-Yip Alex Ho and James Yetman in a working paper published last fall. Even if policy makers make mistakes, the economy will grow again eventually. “If an aircraft stalls, there are no self-correcting mechanisms,” they wrote. A crash is irreversible and permanent. “Perhaps we need a better analogy.”

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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