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

Recent advances in high-frequency identification of monetary policy shocks reveal that measures are contaminated by information and news effects. We contribute to this literature by incorporating the intermittent release of central bank projections, i.e. the Summary of Economic Projections (SEP). We develop a theoretical framework showing that forecast releases amplify monetary policy surprises by providing additional information beyond what is conveyed through interest rate decisions alone and by anchoring expectations during non-release meetings. We confirm empirically that monetary policy surprises following SEP releases are typically 1.5 to 2 times larger than those without releases. To identify the information channel, we construct novel SEP surprise measures using a Bloomberg survey of market expectations about Federal Reserve projections. SEP surprises explain about 30 percent of the variation in monetary policy surprises during SEP meetings and account for essentially all of the differences between SEP and non-SEP meetings. Finally, to validate that SEP surprises contain economically meaningful information, we show that individual forecasters update their expectations of core PCE inflation in response to both common and their own idiosyncratic SEP surprises.