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Fedspeak explained

Fedspeak is a term used to describe the jargon and acronyms used by the Federal Reserve when it comes to things like interest rates and how much money is in circulation. It can be difficult to understand for people who don't have a lot of financial literacy, but it's important to be able to follow what the Fed is saying in order to make informed financial decisions, because what the Fed says directly impacts, for example, how expensive it is to buy a house or a car because interest rates change as a result of what they say.

Here are a few things to keep in mind when trying to understand Fedspeak:

  • The Fed uses a lot of acronyms. Some of the most common ones include:
  • FOMC: The Federal Open Market Committee, which is the group that sets monetary policy.
    • QE: Quantitative easing, which is a tool the Fed uses to buy assets (usually bonds) in order to stimulate the economy. (and the corresponding selling of bonds in order to "tighten")
    • IOER: Interest on excess reserves, which is the interest rate the Fed pays banks on their excess reserves.
  • The Fed often uses euphemisms. 
    • For example, it might say that it's "tightening" monetary policy when it's actually raising interest rates (or, conversely “loosening” if they’re lowering rates).
  • The Fed sometimes uses technical terms that can be difficult to understand.
    • For example, it might talk about "the Taylor rule" or "the Phillips curve."
      • The Taylor rule, essentially, is that when inflation or unemployment is high, interest rates should be raised, and lowered when they are low, to keep the economy on course.
      • The Phillips curve is a graph that says that the higher unemployment is, the lower inflation is, and the lower unemployment is, the higher inflation is.
If you're not sure what a particular term means, don't be afraid to ask someone or look it up online! It's important to understand what the Fed is saying so that you can make informed financial decisions.

Here are a few resources that can help you learn more about Fedspeak:
  • The Federal Reserve's website has a glossary of terms that can be helpful.
  • The St. Louis Fed has a website called "FOMC Speak" that provides plain-language explanations of Fed policies and actions.
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