Translating the Fed
I just discovered the Slate Plain English tool. Still under development, its function is to transform unintelligible jargon into normal English. To see how it works, you might want to look at a Slate/Planet Money translation of Tuesday’s Federal Reserve statement.
When you go to the Slate translator, just click on a Fed sentence and you will see it in everyday English. For example…
From the Fed: “Business spending on equipment and software is rising, though less rapidly than earlier in the year, while investment in nonresidential structures continues to be weak.”
From Slate: “Companies are buying more stuff, for now, but they’re not building new factories or offices.”
The Economic Lesson
Based in NYC, the Federal Open Market Committee (FOMC) is responsible for determining the Federal Reserve’s interest rate policy. Usually, they decide to boost economic activity by buying treasury and federal agency securities in financial markets and/or lowering the discount rate. (A good way to remember–boost and buy) If they want to sink economic activity because of excessive inflation, then they sell treasury and federal agency securities in financial markets and/or raise the discount rate. (sink and sell)
The term for buying and selling treasury and federal agency securities is open market operations. One consistent goal of open market operations is a federal funds rate target– an interbank loan rate goal.
Typically released on a Tuesday or Wednesday, at 2:15 after a Federal Open Market Committee (FOMC) meeting, a narrative of the Fed’s assessment of the economy and policy is publicized. The FOMC has scheduled 8 meetings for 2010.