Did I make myself clear? The Fed and the market in the post-2020 framework period

We study the Federal Reserve's monetary policy communication in the post-2020 period, focusing on its impact on market expectations and term premia. We explore a channel whereby changing public perceptions of policy mistakes due to communication failures can raise risk premia. We document that the FOMC's post-framework communication sowed uncertainty about the Fed's reaction function, especially its response to inflation. Concerns about policy mistakes raised term premia, undermining the easy financial conditions the Fed initially sought. While the pre-tightening period saw an increased sensitivity of term premia to inflationary surprises, the hawkish pivot post-March 2022 prevented, in part, premium increases on disappointing macro news. By highlighting the importance of effective communication in shaping market beliefs and financial conditions, we derive some lessons from the FOMC's communication during this period. Additionally, we propose a series of design options for consideration in the forthcoming FOMC strategy review.