The Federal Reserve has lately been in the news almost as much for how it makes and communicates its decisions as for the decisions themselves.
Beginning with the announcement that it will hold four press conferences per year in order to more clearly communicate the decisions of the Federal Open Market Committee (FOMC), the Fed has promised to "continue to review its communications practices in the interest of ensuring accountability and increasing public understanding."
To a greater extent than one might have predicted, the Fed kept its promise by ending the year with the announcement that it’s venturing into the social media fray. In late September, The Federal Reserve Bank of New York (FRBNY) invited companies specializing in "sentiment analysis" the chance to bid on a contract for creating a system to monitor what people are saying about the Fed online.
It’s not hard to contextualize the decision. The Fed has long been a target of critics who charge that it is an unelected entity usurping the power of democratically anointed officials to rule the U.S. economy. (In the 1950s, John Kenneth Galbraith was already railing against monetarism in The Affluent Society.) The financial crisis has now depleted much public patience with suits who ruminate in secret and hand down decisions as a fait accompli.
Whatever other driving motives, the current plan to implement a global social media monitoring system is tacit acknowledgement that the Fed has recognized the need to be more transparent, although the extent of that greater transparency is a question mark. But an even larger question that has some of us scratching our heads is "Why?" Why would the Fed care one devalued penny about the public’s attitude?
It’s not a question that implies simple arrogance on the Fed’s part. It’s a practical matter. The aura of mystery has served the Federal Reserve quite well, both in terms of policy and public perception. Some part of us wants the assurance that an entity unencumbered with political pressure is there as a safeguard. For those of my generation (and therefore excluding many of the Occupy Wall Street marchers) who remember the runaway inflation of the late 1970s, the very name Paul Volcker gives us warm and fuzzy feelings.
Ironically, we can only guess as to the why since the decision to be more involved in public dialogue was itself made privately. That said, we can anticipate the challenge for the Fed in its pursuit of a more open communications policy. It must maintain its gravitas, and the authority that a less communicative approach ensures, while at the same time reaping the presumed benefits (for itself and for the American people) of a credible social media engagement.
That’s not easy. Imagine the Wizard of Oz publishing the Emerald Kingdom’s annual budget report while trying to maintain institutional omnipotence. Alas, for Mr. Bernanke, the world wants him to be democratic and authoritarian at the same time. Yet as we all know by now, platforms like Facebook or Twitter can make or break reputations.
Why is therefore only the first question. The second question that the Fed’s odd position begs is how. How will it use the social media?
Broadly speaking, the social media are defined by reciprocity, by dialogue. You can read a "tweet" and you can "tweet back" or "re-tweet" as well. The platforms are also largely youth-driven, but not just OMGs about somebody’s wedding. Young people—they who knewest not Volker—have launched real-time revolutions online (think Egypt, of course). For the Fed, there may be some strange centrifugal forces unloosed by its expanded online presence or, at the very least, a slippery line on which it will need to balance.
To walk that line successfully, the Fed must tilt its needle a little more toward the democratic axis, without forgetting the equally compelling public expectation that it must be right and effective; that it must buttress and sometimes drive sound economic realities. At the end of the day, it cannot make monetary decisions based on "sentiment analysis," and angry sentiment at that.
Nor can the Fed rise even to the level of how a Wall Street CEO like Citigroup’s Vikram Pandit responds to a phenomenon like Occupy Wall Street. ("[T]rust has been broken between financial institutions and the citizens of the U.S. [and] it is Wall Street’s job to reach out to Main Street and rebuild that trust," said Pandit.) Imagine a tweet like "More disinfo on the way. Business as usual 4 the Fed." Should the Fed’s communications engine then drum up a response like "Hey man, that’s cool. We understand ur frustrations. What can we do 4 u?"
Yet despite the limits that the Fed will face in its social media usage, and the myriad of institutional sensitivities at play, the historical die is cast. The public is frustrated. The public is mystified. The public is suspicious. If in its social media engagement, "hey man, that’s cool" doesn’t work, Bernanke’s troops should find language that does work, both for itself as a necessarily guarded entity and for a public that will only want more disclosure in the years ahead.
Better, the Fed’s very effort to do so will represent a potential boon as it could provide solutions to the nagging problem of how public institutions that must guard their privacy can be simultaneously transparent. To that end, the Fed’s new adventure may provide something of a working social media model for others who must likewise be active online yet maintain just the right Augustan tone.
One solution may lie with third-party supporters. The RFP announced this fall wants a broad spectrum of global financial opinions at its disposal in order to "continuously monitor conversations" and to "identify and reach out to key bloggers and influencers." By enlisting individuals outside the institution who can afford less formality in their public communications, the Fed can walk the tightrope by proxy. It would increase transparency without vitiating its singular brand. It would have a cadre of independent spokespeople deployable during crises as well as calmer times.
One intriguing fact is clear. Having publicly announced its interest in the social media, the Fed cannot now renege without looking disastrously silly. The balloon is flying home to Kansas, and the Wizard has to touch down somewhere.
Follow Richard Levick on Twitter@richardlevick.
Richard S. Levick, Esq., is the president and chief executive officer of Levick Strategic Communications, a crisis and public affairs communications firm. Mr. Levick is on the prestigious list of "The 100 Most Influential People in the Boardroom," is the co-author of The Communicators: Leadership in the Age of Crisis and Stop the Presses: The Crisis & Litigation PR Desk Reference, and writes for Bulletproofblog. Reach him at firstname.lastname@example.org.
[Image: Flickr user AbyssWriter]