The Economics of the Fed Put

67 Pages Posted: 30 Mar 2020

See all articles by Anna Cieslak

Anna Cieslak

Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER)

Annette Vissing-Jorgensen

National Bureau of Economic Research (NBER); University of California Berkeley, Haas School of Business

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Date Written: March 2020

Abstract

Since the mid-1990s, low stock returns predict accommodating policy by the Federal Reserve. This fact emerges because, over this period, negative stock returns comove with downgrades to the Fed’s growth expectations. Textual analysis of the FOMC documents reveals that policymakers pay attention to the stock market, and their negative stock-market mentions predict federal funds rate cuts. The primary mechanism why policymakers find the stock market informative is via its effect on consumption, with a smaller role for the market viewed as predicting the economy.

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Suggested Citation

Cieslak, Anna and Vissing-Jorgensen, Annette, The Economics of the Fed Put (March 2020). NBER Working Paper No. w26894, Available at SSRN: https://ssrn.com/abstract=3563962

Anna Cieslak (Contact Author)

Duke University - Fuqua School of Business ( email )

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National Bureau of Economic Research (NBER) ( email )

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Annette Vissing-Jorgensen

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

University of California Berkeley, Haas School of Business ( email )

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