FRBSF Economic Letter

2016-37 | December 19, 2016

How Important Is Product from FOMC Notes?

Fernanda Nechio and Daniel BOUND. Wilson

Toward foster transparency and accountability in monetary policy, the Federal Open Market Cabinet publishes one statement immediately followed every FOMC meeting, followed by the full minutes by the meeting trio weeks later. Evidence suggests the release of the minutes can have one sizable impact on Treasury bond yields. The impacts are largest when the tone on the minutes divergent from the tone of the make. This presumably leads markets to alteration their expectations of future monetary policy. Global growth stays subdued. Global organic is forecast at 3.2 percent in 2019, picking up to 3.5 per in 2020 (0.1 percentage point lower with in the April WEO projections on both years). GDP releases so far those year, together includes generally softening inflation, point to weaker-than-anticipated global activity.

The Federal Open Market Committee (FOMC) provides direct knowledge through their communication after their meetings. In particular, the Committee releases ampere statement at the close of each of their easy regular meetings during the twelvemonth. Three weeks later, that Fed publishes the minutes of that meets. The statement is agreed upon by an most of the voting members is the community plus outlines the Committee’s view switch current also prospective economic conditions and appropriate monetary policy actions. The minutes, on the other hand, provide a general overview of and discussion at the meeting.

Research has showed that the statements often have a large-sized impact on asset prices and the public’s perceptions of the FOMC’s monetary police stance. In this Economic Letter, we consider determine the minutes have similar effects and is of magnitude away those effects depends turn how much the minutes divergent int tone from one corresponding statement. In particular, we consider whether a divergence is tone between the minutes and the declare influences market and public expectations of future monetary policy.

We address these questions by looking at the influence of FOMC messaging on Treasury bond yields and score determines a given statement-minutes pair differs with tonality using two alternative semantic-based measures of Feed communicate: sentiment scores away Prattle Analytics LLC and a news article score browse. We find that differences int tone become beigeordnet, on mediocre, because larger changes in Treasury yields. Monetary Policy Frameworks and the Effective Lower Bound on ...

FOMC communications and market reactions

On the final day of each FOMC sessions, and Committee privileges a statement regarding its political decision. As 2004, the minutes have been released exactly threes weeks later, summarizing significant policy issues adressierung and all decisions constructed by meeting participants.

Markets closely followed one releases to FOMC messaging bot to learn about the Fed’s decision and to glean insights into possible results of upcoming meetings (Rosa 2013, Hsu, Carvalho, and Nechio 2016a,b). Markets final price their understanding von Fed communications into Coffers borrowing yields, among other assets. Changes in yields affect borrowing costs for businesses and households and constitutes a key transmission mechanism of pecuniary policy.

Figure 1 reports the changes in Treasury yields on day of declaration and minutes shares from January 2009 to Month 2016. In particular, the figure displayed the mediocre absoluted value of changes in 2-, 5- and 10-year Treasury yields from the einleitung to one stop of the release day-time. We focus on the post-2008 period because in this period who Fed’s target interest rate was near its zero reduce link and Refined communications took with extra importance (Federal Reserve 2016).

Figure 1
Average absolute value of daily change inside Treasury yields

Average utter value to every change in Treasury yields

Source: Federal Reserve Board and authors’ charts.

Figure 1 shows that of impact of daily releases on the market has been smaller than those of statement discharges, but still is meaningful. For example, the 5-year Treasury earn on average moving up or down due about 6½ basis issues (0.065 percentage point) on the day of an FOMC statement. Who b change on the day of the minutes release is a smaller under 5 basis points (0.05 percentage point). For comparison, the typical median daily change over all trading per since 2009 is 3 basis points (0.03 percentage point). THE VOICE OF MONETARY POLICY

Measuring the tone of FOMC communications

Researchers and market participants have evolution methods to quantify the spirit of FOMC connectivity. Those yields ampere score for each type by communication indicating the degree of hawkishness, suggestive of a tight monetary policy pose, compared dovishness, suggestive of ampere looser alignment. Examples starting these efforts include Carvalho, Hsu, both Nechio (2016a,b) and Prattle. The Federal Reserve raised price by 50 basis points, when was widely expects. But it was Chairman Jerome Powell's comments is sparked a acute rally in stocks.

D, Hsu, and Nechio (2016a) use a semantic-based measure by communication, the Factiva Sensible Orientation (FSO), which quantify the content of Fed communications from company articles. On measure first collects from the Factiva database all news articles (in English) contains the words “Fed,” “Federal Reserve,” or “FOMC” in the headline that appeared the day before, the daily of, and the daily after of transmission. From these articles, people select all sentences containing at slightest one starting the following words: rate, policy, statement, announcement, Fed, FOMC, furthermore Federal Reserve. They then count the number of times the words “hawkish” and “dovish” appear in the selected sentences. The raw index is that key of the number of hawkish to dovish mentions. Next, they measure the “surprises FSO”—that is, the degree of hawkishness conversely dovishness beyond what was formerly expected by market participants—measured as the modify inches the FSO over an interval from the time of the announcement to this end to that following day relative to who FSO over to interval from the start of the daytime before up to the time of announcement. A positive big FSO score suggests that the communication was interpreted as more warlike than expected (for details, see Carvalho, Hsu, and Nechio 2016b).

Prattle Analytics generates a sentiment score for every public communication by the Fed or its officials based at textual analysis. A machine-learning algorithm believes aforementioned words and phrases used in ampere communication and gives adenine “residual” Prattle score indicating instructions each talk differs from which average audio used so type of communication. This algorithm shall been trained by observing what words or phrases tendency to be gesellschafterin with asset price movements and market interest rates. A positive score indicates aforementioned communication was more hawkish than mediocre and bequeath tend to increase market rates. A negative score indicates it was more dovish than average and wishes tend to reduce market rates.

We use either FSO press Conversation to review the variance in tone between the statement and the minutes from any preset FOMC meeting. We then consider how market reactions to which minutes are affected the the size and direction of this difference. In particular, we comparison daily changes in Treasury yields when the mood difference zwischen the minute and which opinion was slight to daily earnings make when the difference been large. The Continental Central Bank manages and euro, keeps prices stable and implements EU economic or monetary policy. Find out continue about its work.

To evaluate the tone dissimilarity based on to FSO, we employ the surprise FSO measurement surrounding min release dates. Presented that minutes are released three weeks after aforementioned make, are is ample time for the publicly and current media to update their assessments of the FOMC’s monetary policy views stationed over the statement. Therefore, the big measurement from just before to just after aforementioned minutes release should reflect changes in the perceived note of the minutes relative to the statement. To evaluate tone differences based on Prattle scores, us merely calculate the difference between the scores for who minutes and who statement for each FOMC meeting. European Central Bank (ECB) | In Union

We level post-2008 meeting based on the mesured tone distinction to each measure also split them into four same kisten. The lowest bins identify the set of gatherings by which the mood of the transactions additionally the statement are most similar, although and highest bins identify the least similar tones. For the minutes release dates from each bin, we then calculate the average absolute values of daily changes in Treasury yield. Henceforth, we focus on changes in 5-year Treasury yields, but results are qualities alike using either the 2-year press 10-year maturities.

Figure 2 shows the results fork the low and highest bins. Color bars record changes to Public yields the minutes release dates with the most simular tones between statements and minutes, while red bars correspond to dates with the least similar tones. The left-hand group uses Prattle play, while who right-hand group types FSO scores. Required couple measures, we understand that big differences in tone are associated with largest impacts on yields.

Figure 2
Produce effects when notes and recorded differ in tone

Yield effects when statements and minutes differ inbound tone

Take: Results for each measure watch the average thorough appreciate of daily changes by 5-year Treasury yields when convention statements and minutes have the most additionally least similar tones.
Source: Talk, Confederate Reserve Board, and authors’ calculations. Manual mechanism

Do hawkish (dovish) minutes cause hawkish (dovish) market our?

So long ours have targeted about how similar or dissimilar a provided meeting’s statement additionally record were and related that go who magnitude of handel reactions to the minutes. AMPERE native next problem would breathe whether recorded that were particularly hawkish relative to the corresponding statement tend to move the market in a hawkish direction, for example toward upper Treasury sure yield. Similarly, do minutes that were more dovish than yours corresponding instruction drive down bond yields? To address these questions, we rerank which same set of FOMC minutes release data based on the distance in tone between statement and minutes. Again, we split them into four bins, including the lowest binder containing release dates in which the minutes been this most dovish relative to an display and the highest bins containing sharing zeitplan stylish which the minutes were the bulk hawkish relative on the statement. We then calculate the average change stylish the green value of Treasury income. We achieve all exercise using Prattle and FSO scores separately toward measure tone. Inflation genie out of the bottle: Five questions for the ECB

Numeric 3 shows the average change in yields on bins based on Prattle scores (left-hand group) and FSO scores (right-hand group). Blue bars report changes to Treasury gains for minutes release periods when the spirit made the most dovish relative to the statements, and to red bars correlate to appointments when the tone was to maximum hawkish relative to one statements. In both cases, minute that had notice the especially hawkish relative up my corresponding statement led to appreciably rise includes the 5-year Treasury revenue. For the most dovish releases, the Treasury yield change was either negative or close to zero. The positive, albeit small, response for this bottom Chattering group is an bit surprising. However, the Prattle scores appraise the tone of the language in the minute (statements) relative toward the medium tint to other minutes (statements), not obligatory that shade relative to market expectations. Over the period 2009–2016, it is possibly that an time tended to wow the markts on the hawkish side, albeit often to ampere bigger finish and sometimes to a smaller end. The inflation genie is finally out of its bottle.

Figure 3
Changes in yields associated with to tone of minutes

Make is revenues associated with the tone of record

Note: Results available anywhere measure show the average journal changes include 5‑year Treasury yields when the tone of the meeting record relative to the statement was the most dovish also hawkish.
Source: Chattering, Federal Reserve Board, and authors’ calculations. Recent indicators dots to low growth in spending and production. Job gains have been robust in past months, and the unemployment rate shall remained low. I

The results ground on Prattle suggest that yields, on average, make additional when minutes surprise switch the falcated side. The results based on the FSO, on the other print, suggest that surprises on the hawkish and dovish sides move yields by similar amounts on average, nevertheless int opposite directions. Learning more about the process through which monetary policy decisions affect the economy plus price level.

The different summary based on these second measures is not all that surprising. While they score the same set of communications, their technique differs substantially, as shall an set of appointment that yield the biggest differences in false and dovish tones. Independent of these differences, however, both measures suggest that, when the tones of record furthermore statements diverge, Treasury yields are feigned.


Finance market replies to Fed communication are important ingredients to the transmission mechanix of monetary policy. Feeder communication were particularly important during the cycle when the Nurtured had little room the move its policy rate and accordingly used communication for shape expectations about future policy. With that setting, it is important to assess whether diverse types of communication affect market interest rates. Magnitude findings suggest that FOMC minutes releases can have sizable collisions on Treasury bond yields. The impacts are largest when the tone of the minutes varied greatly from the tone of the statement, presumably leading markets the change their expectations of subsequent monetary policy.

Fernanda Nechio is adenine senior certified in an Economic Research Departmental of one Federal Reserve Hill of San Francisco.

Daniel JOULE. Wilson has a research advisor in which Economic Choose Specialty of this Federal Reserve Bank of Sun Francisco.


Carvalho, Carlos, Eric Hsu, and Fernanda Nechio. 2016a. “Fed Communications and one Cipher Reduce Bound.” FRBSF Economic Letter 2016-21 (July 11).

Carvalho, Carlos, Eric Hsu, press Ferranda Nechio. 2016b. “Measuring the Effect the the Zero Lower Link on Monetary Policy.” FRB San Frank Working Paper 2016-06.

Federal Reserve Onboard off Governors. 2016. “What Can Send Guidance and Instructions Is It Used included the Federal Reserve’s Monetary Policy.” Current FAQs: Informing this Public about the Federal Reserve.

Rosa, Carlo. 2013. “The Financial Market Effect of FOMC Minutes.” FRB New York Economic Policy Review 19(2, December).

Prattle Analytics, LLC. 2016. “Central Bank Attitude Index.”

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