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How Do FOMC Projections Affect Policy Uncertainty?

Author

Listed:
  • Bundick, Brent

    () (Federal Reserve Bank of Kansas City)

  • Herriford, Trenton

    (Federal Reserve Bank of Kansas City)

Abstract

In January 2012, the Federal Open Market Committee (FOMC) began publicly releasing its participants’ projections for the future value of the federal funds rate. The former FOMC Chair Ben Bernanke stated that these releases help the public form policy expectations. However, Federal Reserve Bank of San Francisco President John C. Williams noted that the range of the funds rate forecast conveyed disagreement and uncertainty. These projections may be conflicting in nature, and thus may not lower public uncertainty. Bundick and Herriford seek to answer the question: do these projections decrease or increase uncertainty about future policy? To answer this question, the authors measure how uncertainty about future interest rates changed after the FOMC began releasing its participants’ projections for the appropriate federal funds rate. The authors found that the overall uncertainty about future interest rates decreased after FOMC began releasing its participants’ interest rate projections. However, the authors found that public uncertainty is correlated with disagreement across participants’ projections. In sum, the findings provide empirical support for the claims of Bernanke and Williams.

Suggested Citation

  • Bundick, Brent & Herriford, Trenton, 2017. "How Do FOMC Projections Affect Policy Uncertainty?," Economic Review, Federal Reserve Bank of Kansas City, issue Q II, pages 5-22.
  • Handle: RePEc:fip:fedker:00051
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    File URL: https://www.kansascityfed.org/~/media/files/publicat/econrev/econrevarchive/2017/2q17bundickherriford.pdf
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    References listed on IDEAS

    as
    1. Glenn D. Rudebusch & John C. Williams, 2008. "Revealing the Secrets of the Temple: The Value of Publishing Central Bank Interest Rate Projections," NBER Chapters,in: Asset Prices and Monetary Policy, pages 247-289 National Bureau of Economic Research, Inc.
    2. Kahn, George A. & Palmer, Andrew, 2016. "Monetary Policy at the Zero Lower Bound: Revelations from the FOMC's Summary of Economic Projections," Economic Review, Federal Reserve Bank of Kansas City, issue Q I, pages 5-37.
    3. Swanson, Eric T., 2006. "Have Increases in Federal Reserve Transparency Improved Private Sector Interest Rate Forecasts?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(3), pages 791-819, April.
    4. Kahn, George A. & Palmer, Andrew, 2016. "Monetary Policy at the Zero Lower Bound: Revelations from the Summary of Economic Projections," Macro Bulletin, Federal Reserve Bank of Kansas City, pages 1-4, April.
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