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Gauging the Sentiment of Federal Open Market Committee Communications through the Eyes of the Financial Press

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Abstract

We apply natural language processing tools to news articles in the financial press to construct a sentiment index—an index of the perceived semantic orientation of monetary policy communications around scheduled Federal Open Market Committee (FOMC) meetings. To that end, we develop several dictionaries that capture various monetary policy tools: conventional monetary policy, asset purchases, and forward guidance. The surprises in the sentiment index around FOMC meetings announcements explain variation in major asset prices classes between May 1999 and November 2022. Sentiment index surprises are important for explaining the variation in asset prices beyond monetary policy surprises.

Suggested Citation

  • Shantanu Banerjee & Paul Cordova & Michiel De Pooter & Olesya V. Grishchenko, 2025. "Gauging the Sentiment of Federal Open Market Committee Communications through the Eyes of the Financial Press," Finance and Economics Discussion Series 2025-048, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgfe:2025-48
    DOI: 10.17016/FEDS.2025.048
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    File URL: https://www.federalreserve.gov/econres/feds/files/2025048pap.pdf
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    Keywords

    Textual analysis; Semantic orientation; Sentiment index; Federal Reserve; FOMC; Hawkish; Dovish; Asset prices; Policy expectations; Conventional monetary policy; Asset purchases; Forward guidance; Zero-lower-bound; COVID;
    All these keywords.

    JEL classification:

    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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