The Sentiment of the Fed

Abstract

Sentiment analysis is applied to the Federal Reserve's documents relating to the Federal Open Market Committee (FOMC). A new method of rating the sentiment of texts is developed through the creation of a 100 000 word sentiment dictionary, and is used to estimate the sentiment of the Beige Book and FOMC statements and minutes. Results show that, under Greenspan’s tenure, the sentiment of the Beige Book anticipated the sentiment of the FOMC minutes while, during the Bernanke era, the sentiment of the Beige Book anticipates the sentiment of the FOMC statement. This finding suggests that the Beige Book, usually made public three weeks before a FOMC meeting, may contain information useful in anticipating policy decisions.

Keywords: economics, Federal Reserve, Federal Open Market Committee, Beige Book, word sentiment dictionary, prediction

JEL Classification: C53, E58, G00, G17