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The Fed is talking more than ever before

Key Points
  • FOMC participants are on pace to deliver a record number of speeches this year.
  • "There is such a significant outflow of information from the Fed that we are almost drowning in trying to interpret what they are trying to say," Torsten Slok, chief international economist at Deutsche Bank, told CNBC.
  • He said, however, the increased communication may be a public good in encouraging an exchange about the economy's strength.
The Fed is talking up a storm

If it feels like Federal Reserve members are speaking more, that's because they are.

Federal Open Market Committee participants have consistently delivered more speeches each year since the mid-1990s, according to Deutsche Bank's chief international economist, Torsten Slok. In 2017, committee participants are on pace to give a record-high 14 speeches per member, versus four in 1996.

"There is such a significant outflow of information from the Fed that we are almost drowning in trying to interpret what they are trying to say," Slok said in a Monday interview on CNBC's "Trading Nation." "The problem is that when you have a lot of voices, you certainly also start having a lot of different messages."

Yet Slok also commented that the Fed "being more transparent ... is a healthy development for financial markets more broadly."

"Financial markets need to be hand-held quite a bit. And if you don't know where we are going, then it's actually helpful that the FOMC, and the Fed more broadly, is trying to tell us what it is that they are doing, and how we should think about things," he said.

The rise in communication from the central bank is not limited to speeches, but also entails the release of more working papers and even blog posts. In March, Minneapolis Federal Reserve President Neel Kashkari wrote a widely read blog post detailing why he decided (as the committee's sole dissenter) against voting for raising the federal funds target rate at its March meeting, entitled, "Why I Dissented."

One of the most notable changes in Fed communication came in 2011, when then-Chairman Ben Bernanke began holding quarterly news conferences after the releases of some policy statements.

Interestingly, a key aspect of Bernanke's post-financial crisis monetary policy involved assuring markets that short-term rates would remain low, which offered the Fed more control over longer-run rates.

As Bernanke said in a 2013 speech: "If monetary policymakers are expected to keep short-term interest rates low, then current longer-term interest rates are likely to be low as well, all else being equal. In short, for monetary policy, expectations matter."

This goes to his more general point that "the effects of monetary policy on the economy today depend importantly not only on current policy actions, but also on the public's expectations of how policy will evolve. ... The public's expectations about future monetary policy actions matter today because those expectations have important effects on current financial conditions, which in turn affect output, employment and inflation over time."

Bernanke therefore forecast that "Communication about policy is likely to remain a central element of the Federal Reserve's efforts to achieve its policy goals."

Still, there may be some downsides to greater communication.

"If the Fed can accurately and simplistically guide markets to a specific outcome/narrative, it'll be great," Sam Rines, senior economist and portfolio strategist at Avalon Advisors, wrote in an email to CNBC. But if the central bank loses the faith or confidence of the markets and the ability to control the narrative, Rines said, it will lead to a poor outcome.

"I do not believe we currently have a clear view of how the Fed speak will play out in the end. But I do think it's an attempt at a signal, but losing the narrative battle would cause it to all be noise," Rines wrote.

A much clearer negative outcome made news last month, when Richmond Fed President Jeffrey Lacker resigned after admitting that he was involved in discussing information about the Fed's actions with an analyst at a firm owned by the Financial Times.

On the whole, however, Slok believes that more communication is good not just for the markets, but for the overall American public whom the Fed ultimately serves.

"Even if we cannot agree on what the right thing is to do, at least it is clearer now than it is has been in a long time," Slok told CNBC. "So at least we have some idea of where they are going. Whether this is the right thing to do or not, time will tell."