(Bloomberg) -- Ellen Meade, who left the Federal Reserve in 2021 after a career spanning 25 years there, played a key role behind the scenes helping officials think about how they communicate policy. She worked with former Vice Chair Stanley Fischer and was a special adviser to former Vice Chair Richard Clarida as the the central bank developed a new framework around average inflation targeting, announced in 2020. She also advised Chair Jerome Powell when he was a governor serving on the FOMC’s communications subcommittee.

Meade, 64, will join Duke University on July 1 as a research professor in the department of economics. Bloomberg News interviewed her by phone on May 12 about the history of Fed communications and some of the current dilemmas. This transcript has been edited for brevity and clarity.

What are you going to be looking for in the minutes from the May meeting to be released this week?

As always, I’ll be looking for the discussion of near-term policy – the rate path, the expected economic conditions, and what policy makers want to see from the data before they slow the pace of tightening. I’m also expecting to see a fulsome discussion of financial conditions because policy makers seem to have guided the conversation away from neutral and toward financial conditions. The minutes may tell us they see the tightening in conditions this time around as greater than in earlier cycles. If that’s the case, then they may judge that they don't need to raise the funds rate by as much this time around.

Why do we sometimes hear different messages from the Federal Open Market Committee minutes, the statement, and the chair's press conference?

The FOMC minutes, post-meeting statement, and the chair’s press conference can send different messages and this reflects in part the nature of the communications vehicles. The minutes represent the very full-throated discussion at the meeting with many diverse perspectives on a range of issues. The meeting discussion is complex and the minutes are intended to give a picture of that complexity — not to give a central point of view. The minutes do this very well, I think, but are perhaps not the easiest of the Fed’s communications to understand.

The post-meeting statement is a concise statement of how the committee sees incoming information, the outlook for the economy, and the risks around that outlook; it lays out the policy action and any forward guidance. It is a consensus document that is ratified at the meeting.

The press conference was added in 2011 as a means of fleshing out the policy statement — providing context based on the discussion at the meeting — and explaining the Summary of Economic Projections.  Because the press conference is live, you can from time to time have remarks that are misinterpreted, not fully explained or perhaps not quite what the chair intended to say.There is a fourth very important communications vehicle that should be included: the Summary of Economic Projections, or SEP.

What’s the goal of the SEP? It isn’t really a consensus forecast.

Policy makers are shooting to get maximum employment and inflation back to target, or heading to their targets, by the end of the forecast horizon. What’s going on now is that this is the first time we have had the SEP with interest-rate projections in it as the economy is heading toward a slowing and possible recession. The March 2022 SEP showed an immaculate soft landing and this will be revised in June — but what will replace it? My bet is the medians will show a slowing in GDP growth below its longer-run rate and a rise in the unemployment rate, perhaps to its longer-run median rate or slightly above.

What do you think the committee’s biggest communication challenge is right now?

The whole discussion that is very fertile out there in the written press about ‘neutral,’ and real interest rates and what inflation rate you use to talk about neutral — I don’t think that particular discussion has been navigated as well as it could have been.

This idea of neutral is a tough one. In this current instance the FOMC could have benefited from two shorter-run concepts: one is around maximum employment and the other is around neutral.

In this episode, the economy is clearly above full employment and inflation is much higher than 2%. So we’re not close to being on an even keel or in that longer-run world. It’s pretty clear that maximum employment and a neutral rate are now higher than their longer-run values. While all these concepts can be confusing, financial markets and Fed watchers understand them — the Fed would have been well advised to make clear that the longer-run unemployment rate and neutral interest rate in the SEP weren’t the right concepts right now. (Note: In March, Fed officials projected that the unemployment rate consistent with longer-run maximum employment is 4% and the longer-run neutral interest rate is 2.4%.)

The FOMC seems really good at communicating a baseline forecast. They don’t seem very good at communicating what happens when the economy gallops off the baseline. And the result is that when a credible policy maker offers an alternative path, markets hew to that because it seems more realistic.

What do you have to say about this?

It doesn’t seem logical to take the remarks of one policy maker — who opened the door to a 50 basis-point increase — and run with it, does it?

This is what was happening before the March meeting. St. Louis Fed President James Bullard was coming out and saying the FOMC could raise the policy rate 50 basis points. Others like San Francisco Fed President Mary Daly or Cleveland Fed President Loretta Mester were saying, “I really don’t think 50.” It took a bit of work for the Fed to get markets to understand that the looming Russian invasion of Ukraine was going to affect the March decision. (Note: a basis point is 0.01 percentage point.)

I don’t see why markets take the view of one policy maker.

Isn’t it because the whole committee can’t offer us an alternative path?

The SEP is only quarterly. In the current environment it gets extremely out of date before it gets updated. If they move to an SEP at every meeting, they probably have to live forever with that. But I do think that would be helpful to them right now.

You could also take the median estimates and run alternatives off the medians if you could agree you were going to run them with FRB-US (the Fed’s simulation of the economy). But you would have to have people agree to the models and methods used to run those alternatives. Getting agreement on these communication initiatives can take an enormous amount of time when it doesn’t seem like it should.

I do agree that the situation right now is so fraught, and it is changing so rapidly, it would be very helpful to have an update of their forecast as well as have scenarios and have them talk from the same hymn book.

How did you remain patient herding all these cats?

It is fascinating to watch. When I first started attending FOMC meetings, it seemed to me that it was a little bit like a soap opera. You have a lot of subplots going on and they are about different issues that policy makers are concerned with. They are on different sides of those issues.  Those subtexts have been running for a long time. It takes a while to see how they are thinking about these things.

Was it hard to get these people to agree on something?


Why do we see Fed officials resorting to code words like “expeditiously”? Why not just say a half-point for the next three or four meetings. Why do they opt for the less specific?

The Fed is saying it wants to move “expeditiously” to the neutral policy rate. How you get there — in terms of basis points and at which meetings — isn’t decided until the FOMC actually holds its meetings. They discuss these issues and policy makers may have a sense of what they plan to do. Maybe even it seems that they are in agreement, although sometimes they have different views. But I think the main reason is that the actual decision hasn’t been made yet, so the best they can do is to select a word that represents what they are trying to achieve and use that word consistently.

©2022 Bloomberg L.P.