Is Fedspeak A Problem For Prattle Tech?

  • Tuesday, November 3, 2015

Alan Greenspan 2

Since becoming a central banker, I have learned to mumble with great incoherence. If I seem unduly clear to you, you must have misunderstood what I said.

–Alan Greenspan

This comment by Fedspeak’s most famous advocate seems to pose a distinct challenge to Prattle’s methodology. After all, if the language of the Fed and its representatives is purposefully cryptic, how can Prattle’s process claim to reliably interpret it?

The answer to this question lies in the historical development of transparency in the Fed (and in banks all over the world). We cover this topic in great detail in our book, How the Fed Moves Markets, and, to a lesser degree, in our free ebook, The Prattle Primer, but we’ll take up the question here as well.

As excerpt above highlights, clear communication and the language of the central bank were, at one time, considered antithetical. During the tenure of two of the Fed’s most famous Chairmen, Paul Volcker and Alan Greenspan, the practice of purposefully vague and convoluted communication became so prevalent and so well-known that it even earned a nickname: Fedspeak.

Why the opacity? During much of the central bank’s history, outside pressure had posed a threat to the Fed and its delicate internal processes, and so, to safeguard their system, the Fed erected a wall of language.

But, even during Greenspan’s time, this practice changed. Instead of only as a tool of obfuscation, the Fed began to see communication as an opportunity to inform outsiders and, eventually, shape markets. For over twenty years now the Fed has developed and employed a consistent, transparent language, and it is because of this that Prattle is able to accurately assess that language using market reaction.

The Prattle Team