What the FOMC Means

Here are tips to translate what this Federal Reserve committee says.

Do you know “Fed speak”? This term dates back to Alan Greenspan when he was Federal Reserve Board chairman from 1987 to 2006 to describe the complex communications.

His successor Ben Bernanke vowed to end the wordy confusion and communicate more clearly with the public about Fed policy. Now, more than 10 years later and under the watch of Fed Chairman Janet Yellen, many still struggle to understand the Fed and its Federal Open Market Committee (FOMC).

This committee of the Fed’s board of governors and five Reserve Bank presidents from across the U.S. meets eight times a year to talk about the economy. Their decisions include ones that affect the interest rates for deposits, loans and credit cards.

Three weeks after every meeting, they share the results or “minutes.” That’s when their words are studied like tea leaves to see what they mean for the U.S. economy. The challenge is translating wordy, complicated sentences with ambiguous terms.


Know the Code

Here are examples of common terms used by the FOMC and excerpts from recent statements followed by translations from PNC Bank economist Mekael Teshome:

FOMC says: “moderate pace”

What it means: The adjectives are based on recent patterns. For example, “moderate” today is based on the U.S. economy’s growth each year of 2-2.5 percent. In the 1990s, it would have been 2.5-3 percent.

FOMC says: “The pace of job gains moderated, and the unemployment rate remained steady.”

What it means: Things are OK since we last met. We thought more people would find jobs, but, at the same time, more didn’t lose their jobs either.


FOMC says: “A range of labor market indicators suggests that underutilization of labor resources was little changed.”

What it means: This is about underemployment and all the people working part-time jobs but want full-time and can’t find it. College graduates working in coffee shops, for example, are underemployed because their job doesn’t match their skill and that’s a concern for the FOMC.

FOMC terms

FOMC says: “short term”… “medium term”… “long term”

What it means: less than one year … 1-2 years … two years or more

FOMC says: “The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen some further improvement in the labor market.”

One of the most-watched FOMC decisions is the federal funds rate, an interest rate range banks or credit unions charge for lending money overnight to other banks.

What it means: We won’t raise interest rates until we see two things: More people getting jobs and the rate of inflation, which includes prices and how much your money will buy (the Fed's inflation goal is 2 percent -- and that's complicated too).


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Mekael Teshome
Translate the FOMC minutes to see what's ahead for the economy, Mekael Teshome says

Degree of Difficulty

How complex are the FOMC meeting minutes? Analysis with the Flesch-Kincaid reading test showed:

  • FOMC statement rated at the 17th grade level – that’s graduate school.
  • U.S. Constitution also rated at the 17th grade level.
  • Most newspapers are written at the eighth grade level.