Ben Bernanke is bringing his 8-year tenure as Federal Reserve chairman to a close, today finishing his final Federal Open Market Committee Meeting. He is finishing two terms marked by easy money and a major shift toward more open central bank communication.
The easy money is easy to quantify by looking at interest rates and the (massive) Fed balance sheet. Communication is tougher, but that doesn't mean there's no reason to try. Below is a tally showing how rapidly the length of post-FOMC-meeting statements has grown during the last 10 years (Bernanke's first term started in February of 2006).
Note: Chart only counts statements after regularly scheduled meetings.
In 2005, the year before Bernanke took over as chairman, the average length of an FOMC statement was 277 words. In 2013, it was 724 words – an increase of nearly 162 percent.
Counting words in press statements from most government agencies would seem like one step away from creating a Carrie-Mathison-style crazy wall. But with the Fed, it's a different story. The Federal Reserve once upon a time was a remarkably tight-lipped organization, changing interest rates without making an announcement, let alone explaining why.
Today, however, the Fed gives detailed explanations after each FOMC meeting, and during the last few years, those statements have grown increasingly detailed. One major reason for that is that in response to the financial crisis, the Fed started undertaking unconventional policies like quantitative easing, and its latest iteration, QE3, which involves tens of billions of dollars in monthly asset purchases.
When the Fed has undertaken these policy steps, especially a new one like QE3, it has used the statement as one way to explain its decision and the rationale behind it. But it wasn't just new policy that made for longer statements – Bernanke championed this idea of explaining Fed decisions, saying that the "legitimacy" of Fed policy depends upon the "understanding and support of the broader American public."
That leads to one important observation: the Fed's depth of explanation doesn't track the economy's health. That is, by this measure, the Fed communicates more now during the recovery than it did during the depth of the economic crisis. That's because the FOMC statements are not about calming economic fears; they're about assessing the landscape and explaining decisions.
Shortly after they announced QE3 in September 2012, central bankers began preparing markets for when they would eventually taper those purchases – a move that could roil markets worldwide. The longest Fed statement of Bernanke's tenure came in December, when the committee announced it would to taper its purchases.
It's important to note that Bernanke isn't the only chair to loosen Fed communications. In 1994, under Alan Greenspan's leadership, the Fed first started releasing statements after each of the eight annual FOMC meetings. (Those statements could be remarkably short; the first one was only 99 words long, and the second contained only 39 words.)
And of course, the statement is not at all the only way the Fed has opened up in the last eight years. Under Bernanke, the Fed started releasing economic projections, for example, and also held several unscheduled meetings during the worst of the financial crisis. The chairman also started holding press conferences after some FOMC meetings, a move that is likely to continue under incoming Chair Janet Yellen, who has supported Bernanke's communication policies.