Helping Wall Street Understand Fed Speak: Monetary Policy Communication and Corporate Conference Calls

Abstract

We explore the role played by earnings conference calls in helping capital markets process monetary policy communications. Using short-time windows centered on FOMC communication days and a novel dataset comprising dialogues between managers and analysts during corporate conference calls, we uncover a tone transmission channel of monetary policy wherein the linguistic tone of Fed communication drives the linguistic tone of macro-related dialogues in conference calls. The tone of macro-related dialogues contemporaneously affects stock markets, and the semantics of such dialogues consistently conveys monetary policy content. Additional analysis suggests that the effect of monetary policy tone on corporate conference calls is stronger in more recent years. Our results shed light on how earnings conference calls serve as an important venue that helps economic agents interpret “Fed Speak.”

Keywords: Monetary policy; Monetary policy communication; Federal Reserve; FOMC; Earnings conference calls; Market Microstructure.

JEL Classification: E52; E58; D83