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How Do FOMC Projections Affect Policy Uncertainty?

Author

Listed:
  • Brent Bundick
  • Trenton Herriford

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

  • Brent Bundick & Trenton Herriford, 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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    References listed on IDEAS

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    1. Campbell, John Y. (ed.), 2008. "Asset Prices and Monetary Policy," National Bureau of Economic Research Books, University of Chicago Press, number 9780226092119.
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    4. George A. Kahn & Andrew Palmer, 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.
    5. George A. Kahn & Andrew Palmer, 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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    Cited by:

    1. Brent Bundick & Andrew Lee Smith, 2022. "Evaluating Quantitative Easing: The Importance of Accounting for Forward Guidance," Economic Review, Federal Reserve Bank of Kansas City, vol. 107(no.3), pages 1-16, June.
    2. Carola Conces Binder & Rodrigo Sekkel, 2023. "Central Bank Forecasting: A Survey," Staff Working Papers 23-18, Bank of Canada.
    3. Michael D Bauer & Aeimit Lakdawala & Philippe Mueller, 2022. "Market-Based Monetary Policy Uncertainty," The Economic Journal, Royal Economic Society, vol. 132(644), pages 1290-1308.
    4. Brent Bundick & Trenton Herriford & Andrew Lee Smith, 2022. "The Term Structure of Monetary Policy Uncertainty," Research Working Paper RWP 2022-02, Federal Reserve Bank of Kansas City.
    5. Binder, Carola Conces, 2019. "Comment on “Central Bank announcements: Big news for little people?” by Michael Lamla and Dmitri Vinogradov," Journal of Monetary Economics, Elsevier, vol. 108(C), pages 39-44.
    6. Brent Bundick & Andrew Lee Smith, 2020. "Policymakers Have Options for Additional Accommodation: Forward Guidance and Yield Curve Control," Economic Bulletin, Federal Reserve Bank of Kansas City, pages 1-5, July.
    7. Carola Conces Binder, 2021. "Central Bank Communication and Disagreement about the Natural Rate Hypothesis," International Journal of Central Banking, International Journal of Central Banking, vol. 17(2), pages 81-123, June.

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