As happens eight times a year, next week financial markets will again turn their attention to what, if any, change the Federal Reserve will make to its policy rate. This column discusses research on the anticipation of such decisions via the Fed funds futures markets, which indicates that markets ‘set up’ much farther in advance than has been previously documented. This finding emphasises the importance of clarity in central bank communications.
Robin Lumsdaine, 11 June 2016
Sylvester Eijffinger, Ronald Mahieu, Louis Raes, 23 April 2015
Classifying the preferences of members of policy committees has been a topic of intense debate and research. This column presents spatial analysis of the preferences of the Federal Open Market Committee (FOMC) members using transcripts from meetings. The results indicate that a political appointment channel was not active or effective, and there is little effect of career experiences. The overall lack of systemic preference among FOMC members is a reassuring with regard to the institutional design of the FOMC.
Stephen Golub, Ayse Kaya, Michael Reay, 08 September 2014
Since the Global Crisis, critics have questioned why regulatory agencies failed to prevent it. This column argues that the US Federal Reserve was aware of potential problems brewing in the financial system, but was largely unconcerned by them. Both Greenspan and Bernanke subscribed to the view that identifying bubbles is very difficult, pre-emptive bursting may be harmful, and that central banks could limit the damage ex post. The scripted nature of FOMC meetings, the focus on the Greenbook, and a ‘silo’ mentality reduced the impact of dissenting views.
Stephen Hansen, Michael McMahon, Andrea Prat, 20 June 2014
Central bank transparency is essential to democratic accountability. Central bankers often limit it – fearing its stifling effect on frank debate. Yet transparency may induce monetary policy committee members to be better prepared. This column discusses evidence showing that the ‘better prepared’ effect is important empirically. Exploiting a natural experiment in the Fed Open Market Committee in 1993 – and using computational linguistics tools to measure the impact of transparency on deliberation – the research shows that the net effect is a more informative deliberation process.