Fisher gets hard lesson on Fed-speak

DALLAS — Federal Reserve officials use such mystifying phrases when talking about monetary policy that their nuanced language has a name: Fed-speak.

Fed officials are terrified of saying anything that will spook the financial markets by hinting at the direction of interest rates. They use phrases that defy precise translation, such as “reductions in equity wealth on consumption” and “irrational exuberance.”

Richard W. Fisher, the new president of the Federal Reserve Bank of Dallas, got a quick lesson last week in what can happen when officials stray beyond Fed-speak.

Fisher said in an interview on CNBC television that the Fed was “clearly in the eighth inning” of a long run of interest rate hikes, with “the ninth inning coming up at the end of June.”

Investors interpreted Fisher’s comment to mean that after raising interest rates eight times in the past year, the Fed would soon stop pushing rates higher.

Fisher hedged his baseball analogy by adding that the Fed “may have to go into extra innings in the contest against inflation,” but clearly many investors believed he was saying that the Fed was growing more concerned about spurring the economy than heading off inflation.

The comments triggered a big but brief rally in stocks and bonds.

It’s not unusual for Fed officials to talk about the economy and inflation concerns. Fisher’s comments, however, went “beyond the normal Fed-speak” and led investors to believe an end to rate hikes was measurably more likely than previously believed, said Bill Cheney, chief economist at John Hancock Financial Services.

“That’s a really big deal,” Cheney said.

Cheney said Fed-speak evolved because officials don’t want to make careless remarks that rattle investors and because the Fed likes to speak with one voice when it makes major announcements.

Frequently, changes in Fed policy are signaled by the chairman. Investors will be watching closely when Chairman Alan Greenspan testifies before Congress on Thursday.

Fisher was a banker, politician and trade official in the Clinton administration before becoming president of the Dallas Fed in early April.

Fisher is the newest voting member of the Fed’s policy-setting arm, the Federal Open Market Committee, which sets interest-rate policy with the goal of preventing the economy from stalling or overheating. The panel meets at the end of this month.

Jeremy J. Siegel, an economist on the faculty of the University of Pennsylvania’s Wharton School, said new Fed officials often make statements with unintended consequences.

“They’re not aware people are hanging on every word,” Siegel said. “You find they become much more careful as the months wear on. I’m sure he has learned in a way that will make him cautious in the future.”

Fisher gave an indication Tuesday that he learned his lesson.

Speaking to a group of teachers at the Dallas bank — his first comments since the baseball analogy — Fisher spoke about the benefits of free trade, then took a few questions from the audience.