Fed statements shorter, not simpler

Janet Yellen discusses the Fed's first interest rate hike in 9½ years, Dec. 16, 2015, in Washington.
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Janet Yellen discusses the Fed's first interest rate hike in 9½ years, Dec. 16, 2015, in Washington.

You can be forgiven if statements from the Fed at times sound like a lecture from your least-favorite college subject.

A Big Crunch analysis of statements released by the Federal Open Market Committee following its meetings shows that since Janet Yellen took over as chair, the statements have become shorter but not less complex. We used the Flesch-Kincaid readability scale, a measure of word choice and sentence length, to gauge the complexity of the statements.

The post-meeting statements' length grew steadily through Ben Bernanke's tenure as chair, from under 200 words in 2006 to nearly 900 in his last few months. The FOMC under Yellen continued with the marathon statements, but reduced them after recent meetings to under 600.

Readability continues to be an issue. No statement from either Bernanke or Yellen clocked in within a high-school level, according to our analysis. They've averaged a grade level of 15, which is equivalent to a junior in college. That means that even if the public chooses to read them, a lot of people wouldn't be able to figure out what's going on.

Most newspapers, for example, are written around an eighth-grade level. Big Crunch analyses have shown presidential candidates of both parties don't speak above a high-school level in debates.

An essay from economists at the St. Louis Fed in October 2014 — just before the drop in statement word length — noted the danger of overly complicated language in the Fed's statements.

"Increased FOMC transparency has benefited financial markets by anchoring inflation expectations," the authors wrote. "But it also has led to longer and potentially more complex statements, which could unsettle financial markets if they are too difficult to understand."

If one of the goals of releasing a post-meeting statement is to inform the public about policy decisions the board is making, the Fed may want to consider scaling down both the length and language to a level that people can understand.