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Common Sense

Wondering What the Fed’s Statements Mean? Be Patient

Janet L. Yellen, the Fed chairwoman, before testifying at a Senate panel hearing last month. Credit...Kevin Lamarque/Reuters

patient adj. “bearing or enduring pain, trouble, etc. without complaining or losing self-control; refusing to be provoked or angered, as by an insult; forbearing; tolerant; calmly tolerating delay, confusion, inefficiency, etc.” — Webster’s New World College Dictionary

When the Federal Reserve convenes next week to ponder the most momentous monetary policy decision since the financial crisis — when to raise interest rates — it will also be grappling with the meaning of one deceptively simple word: “patient.”

What, exactly, does it mean if the Fed keeps “patient” in its outlook for monetary policy, or, as investors now seem to think more likely, drops the word?

Billions of dollars in profits and losses will be riding on the outcome. The market has been gyrating on every comment by the Fed’s chairwoman, Janet L. Yellen, who has had to explain at length just what “patient” means.

This isn’t how the new transparent Fed was supposed to work. In 2004, Ben Bernanke, then the Federal Reserve chairman, proclaimed the end of “Fedspeak” — the “turgid dialect of English,” as the Princeton economist Alan Blinder put it — by which central bankers made wordy pronouncements that said little or nothing, or even obscured or distorted the Fed’s intentions. As Mr. Bernanke stressed then in a much-cited address, central banks should communicate their intentions about rate changes clearly and succinctly. “There is much that a central bank can do — both by its actions and its words — to improve the ability of financial markets to predict monetary policy actions.”

But 10 years later, the public, news media, financial analysts and investors are still struggling to figure out what the Fed’s words mean. I don’t doubt that Ms. Yellen and her colleagues at the Fed are trying hard to carry out Mr. Bernanke’s mandate for better communication. But they also seem more comfortable with what seems to be a deliberate level of ambiguity.

To better understand why that is the case, I reached out to some experts in the field of linguistics rather than economists or market experts. I wondered: Is language itself up to the task?

Take the market’s current epistemological fixation. “Patient” would seem a virtue, especially as opposed to its opposite (“hasty” or “impetuous”), and a quality that one would hope would be second nature to central bankers.

Last Dec. 17, the Fed injected the word “patient” into its statement on monetary policy, saying it would be “patient in beginning to normalize the stance of monetary policy.” Even this shows a drift back into Fedspeak: “Normalize the stance of monetary policy” seems a needlessly convoluted way of saying “raise interest rates.” That aside, what was new?

At a news conference the same day, Ms. Yellen said the statement meant something quite specific: that the Fed would not raise interest rates for at least a “couple” of meetings in 2015, adding, “I believe the dictionary says a couple means two.” Immediately, stocks soared and interest rates plunged as investors concluded that any rate rise was further off than previously expected.

Then, late last month, in testimony before Congress, Ms. Yellen said the word “patient” would at some point be dropped, and the Fed would consider raising rates on a “meeting by meeting” basis. This message seemed to puzzle investors, who showed no immediate reaction. But last week, after a strong jobs report, they concluded that “patient” may be dropped sooner rather than later — even as soon as the Fed’s meeting next week — paving the way for a rate increase as soon as June. Last Friday and again on Tuesday, stocks swooned.

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Chairman Richard C. Shelby, left, and ranking member Sherrod C. Brown at a Senate hearing where Janet Yellen testified.Credit...Kevin Lamarque/Reuters

That seems a lot of baggage for one adjective. But by now it seems clear that “patient” has become a term of art, a word with a meaning specific to the Fed. That’s because the meaning of “patient,” like many adjectives, depends on context. Lawrence Solan, who has both a law degree and a doctorate in linguistics and teaches at Brooklyn Law School, cited three distinct situations: standing in line at a Staples store to have a copy made, waiting to see a doctor and waiting to get a mortgage approved. “Patient” in the first example might mean five minutes. For the doctor, perhaps a half-hour to an hour. For the mortgage, several weeks.

“When have you waited long enough to have been ‘patient’ so you can politely complain again in the doctor’s office, the copy shop or to your mortgage bank? There is no real answer,” he said.

As another example, he cited the adjective “tall.” A “tall” first grader is likely to be far shorter than a “tall” professional basketball player.

“We automatically contextualize ‘patient’ to fit the context of the Fed’s decision, just the way we do for other quite specific situations,” Professor Solan said. “There really can be a meaning of ‘patience’ that applies only to the Fed, the same way there can be a meaning of ‘tall’ that applies only to first-grade children. Of course, it really isn’t the meaning that has changed. Rather it is the context that has changed for a word whose application is highly context-sensitive.”

Steven Pinker, a professor of psychology at Harvard and author of “The Language Instinct,” agreed that context was essential to understanding the Fed’s meaning. “It’s more akin to the language of diplomacy, politeness, tact, innuendo, euphemism, veiled threats and bribes and oblique sexual come-ons,” he said. “Cases in which the content of a speech act is highly fraught.”

“When the chair of the Fed speaks, she knows that she is not just conveying information about the Fed’s plans, but sending a signal that changes the way that millions of people will behave, and how each will expect all the others to behave,” he said. “Investors not only interpret the remarks but try to guess how other investors will interpret the remarks. In that regard, her words are like an oath or a pronouncement of a jury verdict or marriage ceremony, or a prayer or a magical incantation — the mere act of uttering them changes the world. So the words take on formulaic meanings, and she is aware of that fact when choosing them.”

The fact that the meaning of “patient” can vary so significantly depending on context, and even then may be difficult to pin down, can work to policy makers’ advantage. After all, if Ms. Yellen were to say exactly when the Fed planned to raise rates, and by how much, market rates would immediately rise, which would render further delay by the Fed all but pointless. (Recent pronouncements by the head of the European Central Bank, Mario Draghi, seem to have had this effect in Europe, driving down European interest rates even before the central bank embarked on its campaign of quantitative easing.)

“Clever language users can make use of ambiguity and what linguists call ‘modals’ ” — words like “possible,” “may” and “could” — “to indicate possibilities, while staying vague about actual plans or detailed strategies,” said David Pesetsky, professor of modern language and linguistics at the Massachusetts Institute of Technology. “My feeling is that such language doesn’t necessarily violate a commitment to transparency, while at the same time it is less informative than it might be.”

Professor Solan made a similar point. “When Yellen speaks of patience having its limits, she is saying that while the Fed will not raise interest rates as soon as doing so is justifiable, neither will it wait until raising rates is an immediate necessity,” he said. “This tells us very little, of course. But it tells us much more than nothing, which is why there is so much chatter about it. If Yellen had said, ‘We can’t be patient any longer’ or ‘We will remain patient for at least another year,’ the reaction would have been quite different.”

All should become clear next week, when the Fed holds its March meeting and Ms. Yellen is scheduled to give a news conference. Or will it?

“It is important to emphasize that a modification of the forward guidance should not be read as indicating that the committee will necessarily increase the target range in a couple of meetings,” Ms. Yellen said in February.

So much for clear and succinct.

A version of this article appears in print on  , Section B, Page 1 of the New York edition with the headline: The Linguistic Forensics of the Fed’s Patience. Order Reprints | Today’s Paper | Subscribe

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