Tuesday, January 22, 2013

Tracking the Laughing Fed

By Bill Bergman

money1The Federal Reserve’s chief monetary policymaking body is the Federal Open Market Committee (FOMC). The FOMC includes members of the Fed’s Board of Governors as well as presidents of the Reserve Banks around the country.  The FOMC holds formal meetings eight times a year. The Fed releases formal transcripts for each of these meetings, albeit on a five year lag.

A few days ago, the Fed released the transcripts for the FOMC’s 2007 meetings.  These transcripts are notable in part because the worst economic and financial crisis since the Great Depression – a crisis with long and still-festering economic wounds — was about to get underway.

FOMC meetings produce decisions with far-reaching consequences.  Section 2A of the Federal Reserve Act, as amended, sets out the Fed’s monetary policy objectives, and states:
The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy’s long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.
Stepping back for a moment, consider the gravity of this responsibility.  There are 12 voting members of the FOMC, and they have been given the responsibility to control the aggregate amount of money and credit used by over 300 million other people.

FOMC meetings are pretty important.  Like other meetings, though, they include people with a sense of humor.  The transcripts provide a word-for-word recitation of what people say at the FOMC meetings, and they also provide notations for intervals when what people say provokes laughter around the room.  The transcript reads “(Laughter)” when these moments arise.
Going back over the 72 meetings from 1999 to 2007, there were 1,855 episodes of Laughter over that time frame, for an average of 25 Laughters per meeting.

There are some interesting trends in this period.

FOMC meeting transcripts have apparently been getting progressively longer since 1999.  The transcripts have more words, and apparently more deliberation going into the monetary policy process, at least within these meetings.   But it seems hard to conclude that longer, more intensive and wordier discussion has produced better economic results, given that this uptrend led into the worst economic crisis since the Great Depression.


While the number of pages in FOMC transcripts rose over this time, so did the number of Laughters.  The chart below shows the total number of Laughters for each year, within those transcripts.


The charts above are annual totals.   The chart below shows the number of Laughters for individual meetings, going back to 1999, all the way through the June 27-28 meeting in 2007.  That last datapoint below was during the Bear Stearns blowup, one of the early harbingers of what was coming for the rest of America.  It looks like that FOMC meeting was a real knee-slapper.


FOMC meetings have some funny moments, at least for the participants.  In 2007, there were over 350 moments of Laughter.  The growth in Laughter over time looks pretty significant, but we have to remember that the transcripts themselves, and the meetings, have gotten lengthier over time.
So, one way to see if the meetings aren’t just funny, but getting funnier, is to look at the Laughter frequency.   Some meetings are funnier than others, and closer analysis could look into that.  But the longer and simpler picture below seems worth underscoring.   It shows the average ratio of Laughter to pages for every year since 1999.


FOMC meetings have been getting more Laughterlike over time, even heading into the worst economic and financial crisis since the Great Depression.  From 2004 to 2006, amidst a developing bubble in housing and credit markets, things were apparently getting very funny.  Laughter subsided in 2007, a bit, but the 2007 result in the chart above happens because it is an annual average.  Things remained full of guffaws during the first half of 2007, but the meetings were apparently sobering up going into the end of the year.

Bill Bergman is a Senior Financial Analyst at Boiling Frogs and writes the ‘Follow the Money with Bergman’ column there.  Bergman has 10 years experience as a stock market analyst sandwiched around 13 years as an economist and financial markets policy analyst at the Federal Reserve Bank of Chicago. He earned an M.B.A. as well as an M.A. in Public Policy from the University of Chicago in 1990. Bergman is married, with three kids, and lives in Chicago. In July 2012, Bergman was a guest on the Robert Wenzel Show..  

The above post was simultaneously published at Boiling Frogs.


  1. Thanks, Bharat. And sad but true, too.

  2. Thank you for sharing. I originate this post to be very educational and helpful. I cannot tell you how many times people have mistaken psychology with psychiatry and vice versa. AudioI am very glad someone finally addressed this.