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Georgia Law Review




In the face of the financial crisis that engulfed the globe beginning in 2007, the U.S. Federal Reserve quickly found itself without the key lever of monetary policy on which it had traditionally relied: short-term interest rate adjustments designed to move long-term rates, and thereby expected levels of lending, investment, and capital retention. By late 2008, short-term rates were already close to zero, yet unemployment remained strikingly high – with no sign of any likely renewal of bank lending or commercial investment.

Famously, the Fed embraced so-called quantitative easing – the purchase of massive volumes of public and private debt – as a strategy in extremis. Less familiarly, the Federal Reserve adopted a framework and regime of communication as a second vital tool in its response to the financial crisis – and specifically in shaping market participants’ expectations as to interest rate movements over the long term. Contrary to a long tradition of “never explain” in central banking, the Fed variously undertook to articulate a long-term framework for its monetary policymaking, to offer detailed reporting of its analysis and deliberations, and to present so-called “forward guidance” as to the conditions that would precede any future change in its short-term ratemaking activity.

From this significant change in the Fed’s communication policies and practices, we have the potential to gain insight into what should be properly understood to constitute “regulatory action” by administrative agencies. While far from the type of coercive constraint that agencies are capable of imposing – and commonly do impose – the Fed’s systematic use of communication as an essential tool in the pursuit of its statutory mandate can be understood to have something of a regulatory quality to it.

Talk may be cheap. But might it also be a kind of regulation?

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University of Georgia School of Law

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