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Deciphering Federal Reserve Communication via Text Analysis of Alternative FOMC Statements

Author

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  • Taeyoung Doh
  • Dongho Song
  • Shu-Kuei Yang

Abstract

We propose a text-based measure of monetary policy stance that models FOMC statements as convex combinations of dovish and hawkish alternatives, providing a tractable representation of the Committee's position along the policy spectrum. Leveraging staff-drafted alternative statements, we fine-tune a pretrained language model to capture both quantitative precision and semantic tone. Stance is defined as the product of tone and novelty, and decomposed into expected and surprise components using high-frequency financial data. Surprises arise from shifts in tone relative to expectations or from statement novelty. Our framework enables counterfactuals showing how alternative communication could have moved markets.

Suggested Citation

  • Taeyoung Doh & Dongho Song & Shu-Kuei Yang, 2026. "Deciphering Federal Reserve Communication via Text Analysis of Alternative FOMC Statements," American Economic Journal: Macroeconomics, American Economic Association, vol. 18(3), pages 379-412, July.
    • Handle: RePEc:aea:aejmac:v:18:y:2026:i:3:p:379-412
    DOI: 10.1257/mac.20220312
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    Cited by:

    1. Baumgärtner, Martin & Zahner, Johannes, 2025. "Whatever it takes to understand a central banker — Embedding their words using neural networks," Journal of International Economics, Elsevier, vol. 157(C).
    2. Donato Masciandaro & Davide Romelli & Gaia Rubera, 2021. "Monetary policy, Twitter and financial markets: evidence from social media traffic," BAFFI CAREFIN Working Papers 21160, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    3. Rubén Fernández-Fuertes, 2025. "Monetary Policy Shocks: A New Hope. Large Language Models and Central Bank Communication," BAFFI CAREFIN Working Papers 25257, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    4. Wang, Kaiwei, 2026. "Words Beyond the Rate Decision? FOMC Statement Innovations and the U.S. Treasury Yield Curve, 2000-2026," MPRA Paper 130358, University Library of Munich, Germany.
    5. Luis Felipe Gutiérrez & Neda Tavakoli & Sima Siami-Namini & Akbar Siami Namin, 2022. "Similarity analysis of federal reserve statements using document embeddings: the Great Recession vs. COVID-19," SN Business & Economics, Springer, vol. 2(7), pages 1-28, July.
    6. Ge Gao & Alex Nikolsko‐Rzhevskyy & Oleksandr Talavera, 2023. "Can central banks be heard over the sound of gunfire?," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 46(S1), pages 183-203, December.
    7. Donato Masciandaro & Davide Romelli & Gaia Rubera, 2021. "Monetary policy and financial markets: evidence from Twitter traffic," BAFFI CAREFIN Working Papers 21160, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    8. Olivier de Bandt & Jean-Charles Bricongne & Julien Denes & Alexandre Dhenin & Annabelle De Gaye & Pierre-Antoine Robert, 2023. "Using the Press to Construct a New Indicator of Inflation Perceptions in France," Working papers 921, Banque de France.

    More about this item

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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