Have FOMC Minutes Helped Markets to Predict FED Funds Rate Changes?

Abstract

This paper examines whether the release of minutes of the Federal Open Market Committee (FOMC) has provided markets with systematic clues about its future policy rates. We explain the future fed funds rate changes using Ordered Probit models (sample 1996 to 2008). We find that timely FOMC meeting minutes have provided assurance to markets about the most likely path of future interest rates. Though, their release did not cause markets to fundamentally revise their expectations on future policy decisions. The paper also discusses lessons from the Fed experience for the ECB and other central banks.

Keywords: Monetary policy, communication, FOMC minutes, predictability, ordered Probit

JEL Classification: C34, E52, E58