“Our ‘extended period’ language indicates that’s some substantial number of meetings,” Evans told reporters today after a speech in Coralville, Iowa. “I have said before that’s at least three or four meetings away.” The Federal Open Market Committee’s fourth meeting of 2010 is scheduled for June 22-23.

What does "extended period" mean? I don't want to put a date on it. To me, it means the policy rate will be kept low until recovery has shown momentum that is based on private business and consumer demand, job growth is established or at least imminent, and the downside risks appear to be safely navigable.

The fact that you had very well informed people coming to different conclusions about what the statement meant -- that, in and of itself, is evidence that the statement was not completely successful.   If it were completely clear, well informed people would come to the same conclusion from the same words.

It is very difficult to craft these statements so that well informed people all come to the same conclusion.  Chairman Greenspan often wrote with the expectation that people would read between the lines. I think Chairman Bernanke is trying very hard to have people read the lines and not draw implications from reading between the lines when no implication was meant to be there.

From Q&A session, as reported by Bloomberg News

MR. WILCOX. The spending side of the national income and product accounts is really the unspoken implication.
VICE CHAIRMAN GEITHNER. The other difference between exhibits 4 and 5 is “weaker” versus “subdued.” Does “subdued” sound weaker than “weak”? [Laughter] Or is “weak” weaker than “subdued”?

Although statements in recent years reflect considerable continuity, changes usually come as a surprise to the market, and the initial meaning of new phrases has not always been clear. For that reason, I think the FOMC could improve clarity, especially when policy direction changes, by agreeing in advance on stock phrases to describe different situations.

To give an indication of how widely expressed a particular view is at a meeting, the minutes use common quantitative wording: ‘‘all,’’ ‘‘most,’’ ‘‘many,’’ ‘‘several,’’ ‘‘few,’’ or ‘‘one,’’ in descending order.

Most recently, the Committee has introduced additional commentary on the outlook for policy into its statement. For example, the August 2003 statement of the FOMC indicated that "policy accommodation can be maintained for a considerable period," a formulation replaced a few meetings later with the comment that the Committee could be "patient" in removing policy accommodation. These statements conveyed information to markets about the Committee's economic outlook as well as its policy approach. .. The language of the statement in August 2003 and subsequent meetings persuaded the markets that an autumn tightening was not in the cards, and market expectations adjusted accordingly. Crucially, this change in expectations resulted in lower interest rates at all maturities, a development that helped support the expansion in the latter part of last year.

I would note that patience in policy action can take several forms. One form would be to wait before taking any action; another would be a damped trajectory for the funds rate once tightening begins. A more gradual increase that begins sooner might enable the Federal Reserve to better gauge the financial and economic response to its actions and reduce the odds that a sharp tightening tack would be required at some point to prevent the economy's overshooting. However, this approach might also run a larger risk of prematurely truncating the expansion--especially if markets interpret the first tightening move as presaging a rapid return to a so-called neutral policy.

I think that many in the market will view the [balance of risk assessments] as essentially a code for the existing tilt language--that, in fact, it will be read as a Committee view about future policy. And it is important for us not to allow perceptions to develop that we're talking in code.

The wording of the directive was changed late last year to make it more transparent. Previously, it instructed the manager, for example, to tighten reserve positions slightly, somewhat or significantly. A "slight" increase in reserve positions was, in fact, code for a 25 basis point increase in the funds rate; "somewhat" of an increase was code for a 50 basis point increase; and a "significant" increase signaled a 75 basis point increase in November of 1994. Of course, the manager of the System Open Market Account attends the meeting and knows the vote was explicitly for a 25, 50, or 75 basis point increase. The revised practice is to report in the directive precisely the outcome of the vote—a 25 or 50 basis point increase or whatever. This is further progress in terms of transparency.

The directive also indicates whether there is a symmetric or asymmetric posture for policy by the use of "woulds" and "mights" in the discussion of possible adjustments to the federal funds rate in the period between meetings. For example, a symmetric policy would be indicated by the wording: "In the context of the committee's long-run objectives for price stability and sustainable economic growth and giving careful consideration to economic, financial and monetary developments, a slightly higher federal funds rate or a slightly lower federal funds rate might be acceptable in the intermeeting period." The symmetry is indicated by the use of slightly in this case with respect to both a higher and lower federal funds rate and by the use of might with respect to both options. Sometimes, but not lately, symmetric directives have used "would" instead of "might" to apply to both options. An asymmetric posture, with a greater likelihood of a rise in the federal funds rate than a decline, would be indicated by the wording: "a somewhat higher federal funds rate would and a slightly lower federal funds rate might be acceptable in the intermeeting period." The asymmetry is evidenced by the use of "would" in one case and "might" in the other, with the "would" indicating the direction that is more likely; and by using "somewhat" to describe the size of any increase and "slightly" to describe the size of any decline.