The Fed's Disclaimer
The quest to find the source of the ubiquitous Fed Disclaimer, “the views I express are my own and do not necessarily reflect the views of my colleagues on the FOMC or within the Federal Reserve System.”
I am Alexander Bagehot and you’re listening to The Bankster Podcast, the only podcast dedicated to the fascinating and ever more consequential world of central banking.
One of the key note speakers at a world-wide economic conference a few months ago in Frankfurt, Germany was Charlie Evans, President of the Federal Reserve Bank of Chicago. The last sentence of his introduction was something that Fed watchers are very familiar with. In fact, so familiar that it has become just part of the background. I am referring to the disclaimer. It goes like this, with only very slight variation between setting and between Fed official, “the views I express are my own and do not necessarily reflect the views of my colleagues on the FOMC or within the Federal Reserve System.”
This disclaimer has become so attached to the words of Fed officials that it even finds itself on the general page of the district websites like this one on the Kansas City Fed’s website, “The views expressed in articles and other content on this website are those of the authors and don't necessarily reflect the position of the Federal Reserve Bank of Kansas City (“Bank”) or the Federal Reserve System.”
See, the disclaimers are everywhere, and they are oh so similar. I’ve heard or listened to literally hundreds of this nearly identical disclaimer over the last few years. However, the disclaimer in Charlie Evans speech a few weeks ago stood out to me more than any I’ve heard.
It ended exactly as the example I just shared and how all the others I’ve heard since I began following the Federal Reserve closely about 5 years ago. However, the way he started the disclaimer made me pause. This is what he said, “...before I begin my remarks, I am obliged to remind you that the views I express are my own...” It was the obliged part that made me pause. During this little pause of mine a flood of questions overcame me.
Obliged? Is he obliged by the times? By the circumstances? By Federal Reserve lawyers? By the nature of his responsibilities? All of the above? Or is it something altogether different?
I didn’t let my mind wander too much on these questions for too long. Google is a finger swipe away, and I expected with a search or two to find a detailed history of the ever present disclaimer. However, I would be disappointed. Not only was there no in depth historical analysis of the origins and purpose of the disclaimer, but I couldn’t find a single mention of it anywhere. Not on the Board of Governor’s web page, not on the Federal Reserve’s official history website. I couldn’t find a single news article written about the disclaimer. The Wall Street Journal alone has a dozen journalists dedicated to Central Banking and I couldn’t find a single mention of the disclaimer in their years of reporting.
The study of Central Banking is niche. It absolutely is. And the disclaimer is a single, boring, repetitive sentence. But the more that I looked into it, the more significance I began to see in it. For example, it wonderfully portrays the spirit of Forward Guidance. That idea that one of the strongest tools that a central bank has is its word. Its word about what it plans to do in the future.
There’s a certain awkwardness in Forward Guidance. A sense of shallow confidence - fed officials claiming to say where they believe policy will or should go yet always noting that they will make decisions based on the data as it comes in. The disclaimer screams this same sense of shallow confidence - that the speaker claims that the speech doesn’t represent the committee yet all the while being one of the instrumental members of the small committee.
Here’s another example, the disclaimer represents the incredibly high level of risk aversion that envelops central banks, not only at the Fed but all around the world. Historically they have been walled off institutions with very few windows into their inner workings. In recent years, partly due to more political attention, a few more windows have been knocked out of the walls of these historically secret institutions. Now an observant watcher can see into Central Banks better than ever before. But the walls are still there and they are still tall and thick. The disclaimer is like the words of one of the guards of the wall - peeking their head through one of the newly knocked in windows and telling, warning you that although there are now more windows, you are still not seeing the full picture.
Anyways, enough of my abstract analogies. But I honestly do think that there’s more to the consistent Fed Official’s disclaimer than initially meets the eye. With this in mind - I decided it was time for someone to spend a weekend looking into this, as Charlie Evans described it, “obligation”.
To satisfy my curiosity, I sought to answer two simple questions about the infamous Fed disclaimer: When did it begin? Why did it begin? Two months later I’m ready to share with you what I’ve found.
When did it begin?
This first question, “When did it begin?” was time consuming and monotonous, but doable. The Fed has an excellent source for historians called FRASER (an acronym for The Federal Reserve Archival System for Economic Research). They have the majority of speeches delivered by the majority of Federal Reserve officials since the 1913 act created the nation’s central bank.
I reviewed over a hundred speeches by dozens of Fed officials and narrowed down the potential starting dates. The individuals that were most useful were those that were serving on the FOMC in the late 90’s and into the early 2000’s. Roger Ferguson didn’t use the disclaimer in October of 98’ but did use it in January of 99’. Janet Yellen didn’t use it during her time as governor in the late 90’s but did use it as soon as she got back to the committee. Don Kohn, who began in 2002, was using the disclaimer from the beginning of his time. Another new comer to the Board of Governors in 2002 was Ben Bernanke who was also using it from his earliest speeches. Laurence Meyer, a governor from 96’-2002 began using it January of 2000.
So first result from my studies - there was not one single, consistent start date when the members of the FOMC began using the disclaimer. However, the disclaimer doesn’t exist before the late 90’s and by the mid 2000’s it’s ubiquitous. Not the answer I was looking for, but about as good as I’m going to get with my current resources and access.
And now onto my second question, “Why did it begin?”.
Why did it begin?
A year ago I read a fantastic book called, “The Power and Independence of the Federal Reserve” by a professor at Wharton named Peter Conti-Brown. I highly recommend everyone read the book and follow his active Twitter account. Anyways, Conti-Brown was my first point of contact for the disclaimer question. He helped narrow my time horizon from the 80 years since the creation of the FOMC where I was planning on beginning my search to “much more recent”. But unfortunately he didn’t have any suggestions for the why part of the question except, “It’s a strategy to mitigate litigation risk.” That was a start.
I next turned to an employee in the legal department at one of the Federal Reserve Banks. This individual had a long history with the Federal Reserve but didn’t know where or when it began or why it stuck. They said that the disclaimer is nowhere in the official rulebook that President’s must follow. Although this doesn’t seem like an answer it was actually very significant in my quest. So turns out the disclaimer isn’t a written law but must be a norm or tradition that is pretty strong to have infiltrated even the public websites of the Reserve Banks. My research needed to continue.
The next two individuals both introduced me to what I thought sounded like the “most likely” theory. One of the individuals was a high ranking Fed official, the other was Sebastian Mallaby, author of another fabulous Fed book I highly recommend called, “The Man Who Knew: The Life and Times of Alan Greenspan”.
The theory as told to me by the Fed official goes something like this. It begins with Alan Greenspan who was the Chair of the Federal Reserve from 1987 to 2006. “Greenspan’s controlling personality didn't want [reserve bank] presidents [or the other governors] giving speeches. He slowly relinquished this control in the following small concessions: Ok, you can give speeches if you have to but not about economics. Ok you can give speeches about economics but not about FOMC. And finally ok, you can give speeches about the FOMC but at least say it's not the opinion of the whole FOMC.”
When I proposed the theory to Sebastian Mallaby, the author of Greenspan’s biography, he confirmed the idea of theory this way, “It's true that Greenspan sought to control speeches by other FOMC members. He dominated the FOMC in a way that BB or JY never did. So while I don’t know the origin of that phrase, [the] theory looks plausible. One source for you might by Lawrence Meyer's book, A Term at the Fed, which gets into AG’s controlling personality.”
As long time listeners of The Bankster Podcast know I have quite the collection of rare and valuable (to a very small number of people in the world) central banking books, one of my recent acquisitions happened to be a signed copy of Meyer’s book. I hadn’t read it yet, but this gave me an excellent excuse to dive in. This is what I could find.
Meyer says, talking about lessons that he learned early on in his career at the Board of Governors, “What the Fed says is often equally important to what it does, and often more so. The FOMC moves markets. That’s why FOMC members have to be so careful about what they say (and why the Chairman would prefer they say as little as possible).”
Then more dramatically, “Still, at one of our FOMC meetings, the Chairman said he thought too much ‘chatter’ was going on between FOMC meetings. By that he meant that the press was attributing too many opinions on the outlook or monetary policy to specific FOMC members or to unnamed Fed sources. These comments invariably heightened speculation about impending policy actions and often increased market volatility. The Chairman preferred Committee members to talk as little as possible about the outlook and monetary policy.”
Ah, interesting, now we’re getting somewhere. It gets better. Listen to what Meyer says next, “At one meeting, the Chairman asked the Committee how it might discipline itself to avoid such occurrences. Several members had suggestions for the rest of us offenders. One said that when delivering speeches, he always tried to be as boring as possible. I responded that I was always only unintentionally boring. Another remarked that he limited his comments to topics that were unrelated to Fed responsibilities. I responded that I talked only about issues that were directly related to Fed responsibilities.
Someone suggested that Joe Coyne, head of public affairs at the Board, develop guidelines that specified what Committee members should and should not talk about. The Chairman encouraged this. I replied that as far as I was concerned, that suggestion was way over the line. I would take into consideration any personal criticism about my comments, I told the Committee, but had no intention of being bound by a consensus-driven decision on appropriate speaking topics. The guidelines would not apply to me, I made clear. Nevertheless, the Chairman asked Coyne to prepare the guidelines and circulate them as soon as possible for discussion. They were never circulated.”
Bingo! This final story, tucked away in the depths of Meyer’s book was one of those wonderful, yet rare, yurika moments in research. And that’s where I’m going to leave it for today’s episode. Meyer goes into a lot more detail about his experiences with Coyne and journalists and his evolving philosophy on Fed speeches. He describes one on ones with Alan Greenspan, FBI investigations into leaks from the FOMC, and more. There’s a lot of good stuff in Chapter 3 of his book, “A Term at the Fed”. But for today’s episode I can count my time searching, interviewing, and writing a success.
In conclusion, it turns out that the most likely theory, at least according to one source, Meyers, is accurate. The disclaimer began in the late 90’s and early 2000’s due to the awesome power that the words of FOMC members wield. The catalyst in the formalization of the disclaimer was Chairman Alan Greenspan. However, push back from some of the committee members made it so the formalization was never truly complete.
And all of this led to what we see today - the ubiquitous disclaimer at or near the beginning of just about every speech delivered by FOMC members today. Look for it in the next Fed official speech.
Today’s episode was written, edited, and produced by me, Alexander Bagehot. Reach out with your feedback, comments, and questions on twitter or via my website www.thebanksterpodcast.com. Leave a rating and share the podcast with your coworkers and classmates. Thanks to all of you for listening, and I’ll see you next time on The Bankster Podcast!