Do Monetary Policy Announcements Shift Household Expectations?

Abstract

We use daily survey data from Gallup to assess whether households' beliefs about economic conditions are influenced by surprises in monetary policy announcements. We first provide more general evidence that public confidence in the state of the economy reacts to certain types of macroeconomic news very quickly. Next, we show that surprises to the Federal Funds target rate are among the news that have statistically significant and instantaneous effects on economic confidence. In contrast, surprises about forward guidance and asset purchases do not have similar effects on household beliefs, perhaps because they are less well understood. We document heterogeneity in the responsiveness of sentiment across demographics.

Keywords: Monetary policy shocks, central bank communication, information rigidities, consumer confidence, high frequency identification

JEL Classification: E30, E40, E50, E70