The Federal Reserve as a Social Actor: On the Intersection of Communication and Investor Expectations

As the U.S. central bank, the Federal Reserve sets U.S. monetary policy (i.e., control of the money supply and management of the inflation rate, economic growth, and price stability) through the Federal Open Market Committee (FOMC) and serves as a lender of last resort. A major actor in the U.S. economic system, it is dispersed geographically across the United States and contains many branches. The chairman of the Federal Reserve communicates on behalf of the entire system before Congress, makes a statement after FOMC meetings, and gives speeches and lectures on economic status and related economic topics. Yet there is little research on what the Federal Reserve actually says. Popular and scholarly literature (e.g., Blinder, Ehrmann, Fratzscher, DeHaan, & Jansen, 2008) assumes or explicitly states that a major goal of the Federal Reserve is to manage economic uncertainty nationally and globally. Uncertainty management has been studied and developed within interpersonal, health, and organizational contexts. Although uncertainty management is associated with information seeking and predictive of interpersonal interactions, it has not been applied to organizations and institutions as speakers or actors (i.e., the Fed as speaker; for notable exceptions to this general claim of application, see Michael Kramer’s body of work, such as Kramer, 1999, 2004). Following the rhetorical tradition of framing organizations as social actors (Cheney, 1992; Coleman, 1974; Hearit, 2006; Heath, 1997; Millon, 2001), in this study, what the Federal Reserve says, and how it says it, has implications for the performance of the economy, much as organizational actors’ talk has implications. As a first step toward understanding how the Federal Reserve manages uncertainty, this study examines what the Federal Reserve says. Conceptualizing the external communication of the Federal Reserve as economic policy communication (EPC), the sentiment (positive, negative, or neutral) of EPC is measured using content analysis of Congressional testimony from the Federal Reserve chairman (specifically Chairmen Volcker, Greenspan, and Bernanke) to explore what the Federal Reserve says when speaking publicly about the performance of the United States economy during times of economic instability and uncertainty. To do so, a content coding scheme was developed with high intercoder reliability. This study examined 114 transcripts of Federal Reserve chairman testimony before Congress to examine a series of five research questions grouped around the following relationships: mentions of the economic future, economy, unemployment, the deficit, and inflation and the association with a) sentiment; b) economic indicators at the time of the Congressional testimony (GDP, the unemployment rate, and the Consumer Sentiment Index); and c) the chair’s level of actual certainty as measured by DICTION, software used to conduct computerized coding. Five logistic hierarchal linear models were tested to measure the association between these micro, sentence-level topics and these macro-level variables (sentiment, economic indicators, and the chairman’s actual certainty). Findings indicate that the chairman of the Federal Reserve does, at times, respond to the performance of the economy during times of high-pressure economic situations. For example, this dissertation identifies associations between the Consumer Sentiment Index (an indicator of household confidence in the future of the economy) and the content of what the Federal Reserve says during testimony before Congress. And while the association between sentence-level content changes and the sentiment and certainty levels are low, this dissertation argues the Federal Reserve chair does, in fact, engage in uncertainty management when speaking about the performance of the economy. While the Federal Reserve does not always seem to respond as strongly to the performance of the U.S. economy as the President might, other extraneous factors (trying to avoid a negative market response or increased economic volatility) may shape the Federal Reserve\u27s discursive response. Overall, this dissertation integrates prior scholarship in interpersonal, organizational, and presidential communication to indicate how the Federal Reserve as a social actor speaks about the economy. For example, when the chairman is more positive, he/she is more likely to speak about unemployment, inflation, or the economic future. When he/she is less certain, he/she is more likely to speak about the economic future, which may be an example of the Federal Reserve chairman tempering public responses to a volatile or uncertain economy. Variations in the three Chairmen indicate that during crises, chairmen respond in unique ways to the economy, but often speak about the economic future, inflation, and the economy. Finally, this project corroborates popular and media perceptions that the main role of the Federal Reserve is to reduce uncertainty, thus extending uncertainty reduction theory to the domain of economic communication and providing pragmatic implications about message content for the Federal Reserve and other governmental and policy-making entities