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Central Bank Communication with the Polarized Public

Author

Listed:
  • Kuang, Pei
  • Weber, Michael
  • Xie, Shihan

Abstract

This paper examines the impact of political polarization on public trust in the Fed and its influence on macroeconomic expectations. Using a large-scale survey experiment which we fielded on President Trump's 2025 inauguration day, we study how households form beliefs about the Fed regarding its political leaning, independence, and trustworthiness. Political alignment significantly shapes perceptions: individuals who view the Fed as politically aligned report higher independence of and trust in the Fed, leading to lower inflation expectations and uncertainty. Strategic communication on institutional structure and policy objectives effectively mitigates perception biases, reinforcing the Fed’s credibility and enhancing its policy effectiveness.

Suggested Citation

  • Kuang, Pei & Weber, Michael & Xie, Shihan, 2025. "Central Bank Communication with the Polarized Public," CEPR Discussion Papers 19952, Centre for Economic Policy Research.
    • Handle: RePEc:cpr:ceprdp:19952
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    Cited by:

    1. Fiorella De Fiore & Damiano Sandri & James Yetman, 2025. "Household perceptions and expectations in the wake of the inflation surge: survey evidence," BIS Bulletins 104, Bank for International Settlements.
    2. Brouwer, Nils & De Haan, Jakob, 2026. "The impact of public knowledge about central bank independence on trust and inflation expectations," Journal of Economic Behavior & Organization, Elsevier, vol. 241(C).
    3. Guo, Junjie & Tang, Li & Xie, Shihan & Yin, Penghui, 2025. "Navigating fiscal fog: Household expectations in an uncertain fiscal environment," Journal of Economic Behavior & Organization, Elsevier, vol. 240(C).
    4. Weber, Michael, 2025. "Navigating neutrality: ECB policy amid heightened uncertainty," SAFE White Paper Series 113, Leibniz Institute for Financial Research SAFE.
    5. Kuang, Pei & Luca, Davide & Wei, Zhiwu, 2025. "Ballots, Budgets and Bricks: Brexit and the Polarisation of Individual Economic Behaviours," MPRA Paper 125104, University Library of Munich, Germany.
    6. Kuang, Pei & Mitra, Kaushik & Tang, Li & Xie, Shihan, 2026. "Macroprudential policy and housing market expectations," European Economic Review, Elsevier, vol. 181(C).
    7. Goodhart, C. A. E. & Hoang Vu, Ly, 2025. "When do people trust their government?," LSE Research Online Documents on Economics 127880, London School of Economics and Political Science, LSE Library.

    More about this item

    Keywords

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    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • E7 - Macroeconomics and Monetary Economics - - Macro-Based Behavioral Economics
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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