Six years ago wasn't a particularly fun time to be a monetary policymaker.
Though economic growth returned in the second half of 2009, more than 15 million Americans were unemployed at the start of 2010—a year that would be marked by political strife at home and abroad, softening housing activity, and a second round of quantitative easing.
Through it all, however, monetary policymakers managed to find cause to laugh about sports, social media, and each other, as just-released transcripts of their meetings and conference calls reveal. Even Lady Gaga and Spanx figured into the mix.
Here are some of the things that passed for witticisms at the Federal Reserve that year, now that the six-year delay is over:
Well, in that case ...
CHAIRMAN BEN BERNANKE: Without objection. Thank you. Item number 3 is the selection of a Federal Reserve Bank to execute transactions for the System Open Market Account. I have been informed that New York is again willing to serve. Do we have a second?
DONALD KOHN: I second.
VICE CHAIRMAN WILLIAM DUDLEY: We are rethinking that now. [Laughter]
Trust hit the zero lower bound before rates:
BRIAN SACK: To help gauge market expectations, we conducted an extensive survey that asked respondents about how they expect the FOMC to exit from its current policy stance. We expanded the survey beyond the economists who are typically included in our dealer survey, because many of you at the last meeting indicated that you don’t actually trust economists. [Laughter] This may be a good time to remind you that most of you are economists.
An alphabet soup of programs:
CHARLES PLOSSER: Regarding question 3, about our certainty of our ability to control short-term interest rates, IO—IEO—I can’t say it either. [Laughter] Eeyore, right. There we go.
Turned out to be the last year he played football:
JEFFREY LACKER: One last thing. I was struck and somewhat amused by the contrast between the state-contingency option and the other ones, as if the other ones would be such firm, iron-clad commitments. I am sort of reminded of Brett Favre announcing his retirement. [Laughter] They seldom issue a statement that doesn’t include the boilerplate language that we’re going to naturally reevaluate things in life.
She never did:
ELIZABETH DUKE: Thank you, Mr. Chairman. Like everybody else here, I look forward to the day we can normalize operations. In fact, having joined this Committee in August 2008, I have a personal objective of experiencing normal here at the Federal Reserve. [Laughter]
How do you say “ZIRP forever” in Japanese?
NATHAN SHEETS: As shown on the middle right, the Bank of Canada and the Bank of England are expected to begin raising rates in the second half of this year, whereas the ECB will wait until early next year. Our best guess is that the BOJ will keep its policy rate close to zero forever, [laughter] but at any rate through the end of the forecast period.
JAMES BULLARD: I just have one question on this last exhibit, and maybe it is a question for the Committee. Is there any discipline on us to prevent us from saying that uncertainty is always higher than average?
LACKER: On average, no. [Laughter]
BULLARD: My experience in the Fed over all these years has been that policymakers are always describing the current environment as a very uncertain one, which is true at some level, but you can’t have above-average uncertainty all the time.
LACKER: Don’t the instructions ask us to respond to that question with reference to a particular historical period—I think the last 20 years—and wouldn’t that allow us to always think uncertainty is higher than usual if it trends up?
BERNANKE: Uncertainty is always rising. [Laughter]
Signs of froth?
LACKER: Thank you, Mr. Chairman. Let me first say that I am very impressed with the breadth of market intelligence reading that President Fisher seems to be able to do. I may unsubscribe to Goldman-Sachs and begin subscribing to Beer Marketer’s Insights right now. [Laughter] It might upgrade the quality of my market intelligence.
Atlas shrugged, then bought bonds:
LACKER: And I am positive about equipment and software, just out of a bit of introspection, knowledge of what the national IT infrastructure at the Federal Reserve is doing, just abundant opportunities, not that they are spending a ton of money recklessly.
RICHARD FISHER: We are holding up the economy, Jeff. [Laughter]
Fed forecasting has really turned a corner since this:
JANET YELLEN: The fly in the ointment was the median FOMC forecast for the 2009 unemployment rate, which was off by 1½ percentage points, an error of three standard deviations. A three-sigma annual forecast error should come along about once every 400 years.
NARAYANA KOCHERLAKOTA: So it won’t happen again. [Laughter]
Who knew, right?
KEVIN WARSH: Thank you, Mr. Chairman. I am going to try to answer two questions in my discussion today. One is a familiar one: What is the most significant development since we last met? And the second is, Who knew free money would be so popular? [Laughter]
DAVID STOCKTON: Thank you, Mr. Chairman. Given the shortness of time we that have available this morning, I considered moving FOMC proceedings to a whole new level of efficiency by Twittering my briefing [laughter], with a Tweet something along the lines of “Recovery remains on track, though headwinds continue to be evident.” But, proving that we are still in Washington, I was informed by the FOMC Secretariat that any proposals for improvements in efficiency require a detailed study, formal reports, and approval by a subcommittee of FOMC members, preferably chaired by Governor Kohn [laughter]. Appropriately chastened, I will try to remain brief within the confines of the traditional format.
Correlation does not equal causation:
KOCHERLAKOTA: One way to get a market measure of this risk is to look at the prices of options that pay off if 10-year Treasury yields rise by significant amounts over the coming three years. These prices reveal that market participants see the risk of such an increase in Treasury yields as being highly elevated by historical standards, although I’m happy to report that they have declined significantly since I joined this Committee [laughter]
Not a bad attendance record:
BERNANKE: Think we ought to acknowledge an epochal event in the history of the Federal Reserve. Today is Don Kohn’s last FOMC meeting, assuming, of course, that he retires as he plans. [Laughter] That’s always a risk.
LACKER: Don’t worry, Don. You’re going. [Laughter]
BERNANKE: I think it should be noted that since 1981 Don has attended 221 FOMC meetings, in a range of capacities, and missed only eight meetings in the past 30 years. So I wonder about those eight meetings. [Laughter and applause]
DANIEL TARULLO: Is it possible that Governor Kohn would say a few words for posterity?
KOHN: I think he said 221 meetings’ worth. [Laughter]
TARULLO: Just a few more.
KOHN: Good luck! [Laughter and extended applause.]
DUDLEY: We should ask for a little more than those two words [laughter]. “You’ll need it!”
SACK: Given the policy options being discussed by the FOMC at this meeting, our attention has turned towards asset sales. Indeed, within two weeks of completing our final MBS purchase, the Desk staff held our first meeting to discuss potential methods for selling them. We really appreciated the two-week break. [Laughter]
Don't forget the icebergs:
BULLARD: The optimal policy should specify fairly clearly that the Committee plans to respond to economic developments by adjusting the sales program, possibly even purchasing in extremely adverse conditions. There’s nothing optimal, in my mind, about the rigid programs that lay out a particular path as in, say, option 1 or option 5. It’s true that you would create certainty in markets, but that’s sort of creating certainty at the expense of adopting a suboptimal policy. You could call this “the Titanic policy.” They set the optimal path to New York City, but then did not adjust—[laughter]—to the shocks as they occurred.
On open mouth operations:
KOCHERLAKOTA: In Minneapolis, we did the simple event study of the one-day effect of FOMC speeches, testimony, and minutes on MBS prices over the past six months. The biggest move came on March 25, when Chairman Bernanke’s exit strategy testimony made clear that the Fed would need to engage in gradual sales at some point. His testimony is associated with a change in MBS prices of six basis points. My own speech on April 6 had an effect on MBS prices of exactly zero basis points. But I admit that this is a result that is consistent with multiple interpretations. [Laughter]
The two-handed economist:
TARULLO: Where does this all leave me? Well, it leaves me wanting a fairly parsimonious decision, because obviously some of my premises are actually or potentially in conflict with one another. And that leads me to—[laughter]—that’s the nature of policymaking
Ottomans as indicators:
LACKER: Last week the annual spring furniture show was in High Point, North Carolina. It’s a well-known international trade event, so it’s something of a bellwether for the U.S. furniture industry, such as it is. There still is a U.S. furniture industry, I assure you [laughter]. Attendance was over 80,000 this year, a 15 percent gain from last year.
Slow and steady wins the race:
ERIC ROSENGREN: Thank you, Mr. Chairman. At my directors meeting last week, several directors made an analogy to a turtle that had bravely stuck its head out in the first quarter, but quickly retreated to its shell in May. [Laughter] Most of the data we’ve seen reflects the period when the turtle was out of its shell, but, in the coming weeks, I’m afraid we’ll get confirmation detailing why the turtle’s courage was short-lived.
Asking the tough questions:
WARSH: First, is the real economy in the U.S. going to deliver on the promise of an effective handoff from government stimulus to self-sustaining private demand? Second, and no less consequential, as previewed yesterday, why isn’t the Tealbook teal? [Laughter] One of these questions is unanswerable; the other merely unanswered. The trick will be deciding from the balance of my comments which is which.
Good luck with that:
KOCHERLAKOTA: A much more difficult problem, is the situation where deflationary expectations start to become hardened—a deflationary trap—as I discussed in the economic go-around. My own assessment of the literature and my own thinking about this lead me to believe that we, the monetary policymakers, have very limited tools at our disposal in this situation. I think it would be great to have staff research on this, because it’s a very challenging problem. Without a lot of monetary policy tools at our disposal, we would have to hope for a sufficient degree of fiscal irresponsibility from the Congress [laughter].
Talk about moving the goalposts:
DENNIS LOCKHART: And, finally, I’d propose that we delay the statement by half an hour and cite the World Cup as our excuse. I think this will add to the prestige of the Fed [laughter] and will, on a global basis, add to the credibility of our institution and have very positive effects on the efficacy of monetary policy going forward. Let the transcript read that I’m kidding.
How to characterize the economic recovery?
BERNANKE: Okay. Does anyone take a view or any other suggestion?
LACKER: Plodding along. [Laughter]
FISHER: Muddling through.
BERNANKE: Staggering along.
TARULLO: I’d be in favor of any of those. [Laughter]
FISHER: We can just say economic activity continues. [Laughter]
Ain't no humor like financial reform humor:
SHEETS: Taken together, net exports should add just under ½ percentage point to U.S. GDP growth on average through the second half of this year and be about neutral next year. We certify that these projections for net exports will be within 3 percentage points of the actual outcomes.
BERNANKE: Is that a Sarbanes-Oxley requirement? [Laughter]
SHEETS: I should say, “I hope we can certify.” [Laughter]
“The Decision” used to be about sports:
LACKER: But, looking on the bright side, while overall uncertainty may be elevated, at least we know where Lebron James is going to play basketball.
SANDRA PIANALTO: And it’s not Cleveland. [Laughter]
Nuts about nuts:
LACKER: Here’s a sign of the times. The CEO of one of the largest peanut companies in the U.S. reports that sales of cocktail peanuts are down, but peanut butter is up. [Laughter]
BERNANKE: Could I inquire further about the peanut indicator? [Laughter] What was the implication of the cocktail versus the—
LACKER: Well, cocktail peanuts are sort of a high-end good, you know, and they’ve fallen in the recession.
BERNANKE: I see.
LACKER: But people are eating more peanut butter.
WARSH: I took that just to mean there were a lot of mixed nuts hanging around you. [Laughter]
On skills mismatches:
KOCHERLAKOTA: The Fed can do many things, but it cannot readily transform a construction worker into a nurse. [Laughter]
Better late than never:
BERNANKE: First, let’s talk a little bit about uncertainty and its effect on investment and hiring. As President Yellen mentioned, this was, in fact, in my Ph.D. dissertation. I’m glad to see that, after 31 years, it’s finally getting a little attention. [Laughter]
Diamond left in the rough:
BERNANKE: The five at the table are stretching out pretty well here. We’re thinking of leasing out a few offices. [Laughter] I think there is potentially some good news, in that we have some prospect of getting two people appointed before the Congress goes back on break. Peter Diamond will have to have another hearing—he needs to convince Senator Shelby that he’s a qualified economist. [Laughter]
BERNANKE: If a country goes from advanced status to emerging market, is that a submerging market? [Laughter]
In the land of the blind …
FISHER: Mr. Chairman, I’ll tell a story to frame my comments. Three Texas Aggies apply to be detectives. The Inspector General lines them up, holds up a picture, and says to the first one, “What do you see?” The Aggie replies, “I see a man with one eye.” The Inspector General says, “Of course you see a man with one eye. It’s a profile.” Then, he holds it up in front of the second Aggie. He says, “What do you see?” “I see a man with one ear.” “Well, didn’t you hear what I said to the other fellow? Of course it’s a man with one ear. It’s a profile.” And then, he turns to the third, and he holds up the picture. “What do you see?” “A contact lens,” replies the Aggie. “What do you mean?” He said, “He’s wearing a contact lens.” He turns to his assistant and says, “Check the book. Make sure that’s the case.” The assistant comes back and says, “He’s absolutely right. He’s wearing contact lenses.” He turns to the Aggie and says, “Well, how could you tell?” He says, “Well, hello. If he only has one eye and one ear, he can’t wear glasses.” [Laughter] Now, why did I tell this story? I don’t know—it’s just a great story.
Searching for inflation:
YELLEN: Surveys of inflation expectations are lower, and inflation compensation from TIPS is lower; even the number of searches on Google for the term “inflation” has been trending down for months. [Laughter] “Deflation” is also headed up.
The good old days …
FISHER: Actually, my preference would be just to issue a one-sentence statement if you want to set up your regime change. “The Committee met and decided not to change the policy articulated at the last meeting.” Thank you, Mr. Chairman.
BERNANKE: I can go one better. We used not to issue any statement at all. [Laughter]
Well, once the character limit is hiked …
LACKER: I do like the idea of press conferences—I think you’d be great at it, Mr. Chairman. I do not think we’re ready at this time for other social media, like Twitter or Facebook, for communicating our monetary policy, but maybe down the road we’d want to consider it. Thank you very much.
BERNANKE: “Rates up”—under 140 characters. [Laughter]
It's just a Nobel Prize:
BERNANKE: We have no new information on the nomination of Peter Diamond to be a member of the Board of Governors. As you’ll recall, his qualifications to serve had been questioned. He has since taken steps to remedy that. [Laughter] It’s good work, but whether it will be sufficient I don’t know. Still, we’re hopeful that he will be reviewed and confirmed. I have spoken to him, and he remains as committed to joining the Board as he was prior to the announcement of his Nobel Prize.
CHARLES EVANS: Could I ask a question? Vice Chairman Yellen—
BERNANKE: It’s Governor Yellen.
EVANS: Governor Yellen. Oh, in this Committee—
BERNANKE: “Your Highness” will be fine. [Laughter]
YELLEN: Good suggestion.
We're No. 1!
SHEETS: Friday’s advance NIPA data indicate that the U.S. economy is clinging tenaciously to its role as the world’s importer of first resort. [Laughter]
A motley crew:
ROSENGREN: In terms of labor markets, I recently had a meeting with my Academic Advisory Council, which includes a variety of economists from Harvard, Yale, and MIT. They are generally a rather unruly bunch—[laughter]—but they were unanimous in their view that most of our current unemployment is the result of inadequate demand.
All about the green:
FISHER: Mr. Chairman, last Wednesday’s Wall Street Journal quoted you describing the calibration of monetary policy as akin to putting. As a golfer—although, I must say, not as good as Governor Warsh or President Lockhart or President Plosser, but much better than President Evans [laughter]—
EVANS: I’m very glad that’s on the record. [Laughter]
I should forgo trying to defend my golf game, because it shares the same property as Warren Buffett’s jet—it’s indefensible. [Laughter]
Lady Gaga & the Giants:
JOHN MOORE: Thank you, Mr. Chairman. When the staff was briefing me late last week for this meeting, they mentioned to me that it might be appropriate to say something about the World Series, or, if not, to do something related to Halloween. Thank goodness the Giants gave me some good results to work with, because I’m not sure how well my Lady Gaga costume would have gone over with this particular crowd. [Laughter] I’ll say something about the Giants in a while. By the way, I asked our research director if everything goes into the transcript, and he told me that certain things could be redacted, if necessary. [Laughter]
The report from Georgetown:
WARSH: Thank you, Mr. Chairman. Like many of you, I will start narrowly and then go broader. The report on economic activity in my neighborhood in Georgetown is strong. [Laughter] Also, President Dudley mentioned that he visited upstate New York, where I’m from, and he noted that the economy there appeared to be “hunkered down.” That’s not a near-term phenomenon—it’s been going on for about 40 years. [Laughter]
PLOSSER: Doing something because we can is not a good way to conduct policy, even when the state of the economy seems unsatisfactory, nor is doing so because the fiscal authorities won’t act. It’s akin to asking your dentist to do your heart surgery, because your heart surgeon is on the golf course. [Laughter]
Now that's just mean:
PLOSSER: Finally, let me note that I largely agree with President Nutter—I’m sorry, it was President Evans who was talking saying that. [Laughter] Excuse me—that just slipped out.
FOMC knows best:
TARULLO: I agree it would be far better if aggregate demand were being supported by the political branches of government. But it’s not, and I don’t think Section 2(a) of the Federal Reserve Act reads this way: “The Board of Governors and the Federal Open Market Committee shall take such actions once they have told the rest of the government what’s best for them to do.” [Laughter]
Less funny two years later:
STOCKTON: Under the assumption that my remarks for this morning have not already been posted to WikiLeaks [laughter], I thought I’d provide the Committee with a brief summary of what I believe are the four major takeaways from the December Tealbook.
STOCKTON: Indeed, as I recently reviewed the staff’s forecast performance over the past year, I began to feel considerable sympathy for the lady inside the GPS unit of my car who seems to be constantly barking out that she is “recalculating” as my driving disappoints her expectations [laughter]. We’ve had to do our share of “recalculating” this year in response to an economy and to exogenous events that often seemed to deviate from the path that we had anticipated.
MOORE: The fiscal situation reminds me of a new piece of apparel that a national clothing retailer told us about recently. Over the past few years, a huge market has developed for a product called Spanx—there’s an “x” at the end, not a “k-s”—which are body shaping undergarments for women. This year the product line has been expanded to include men’s Spanx, a tight-fitting undershirt that can slim down almost any male figure [laughter]—present company excepted, I suspect. Where am I going with this anecdote? Well, as I observe reaction to the Deficit Commission’s proposal, I can’t help but feel that our country will resort to fiscal Spanx rather than a good, old-fashioned diet in addressing our long-term fiscal deficit.
I can see QE2 from my house:
KOCHERLAKOTA: I would recommend against doing another LSAP for a couple of reasons. As I suggested in October, I think that we have relatively little control over its effects. Its ultimate impact depends on the accumulated stock of purchases that markets expect us to undertake, and that dependence combined with its relative novelty leaves us at the mercy of outside influences. Indeed, even tweets from former governors of Alaska can end up affecting those expectations. [Laughter]