When the Fed Reveals Its Hand: The SEP and Monetary Policy Surprises

Recent advances in high-frequency identification of monetary policy shocks reveal that they contain central bank information and response to news effects. We argue that the intermittent release of central bank projections, i.e. the Summary of Economic Projections (SEP), is a key source of information. We develop a theoretical framework in which forecast releases provide information beyond what is conveyed through interest rate decisions alone and private expectations are anchored during non-release meetings. We show empirically that monetary policy surprises following SEP releases are typically 2 to 3 times larger in absolute terms than those without releases. Using a unique Bloomberg survey of market expectations about Federal Reserve projections, we construct a novel SEP information surprise measure that explains about 30 percent of the variation in monetary policy surprises during SEP meetings and accounts for a substantial portion of the differences between meeting types. Finally, to validate that SEP surprises contain economically meaningful information, we demonstrate that they affect both inflation expectations and macroeconomic outcomes.