The Market Impact of Fed Communications: The Role of the Press Conference

Abstract

We document a shift in the market impact of the press conference given by the Federal Reserve Chair at the close of FOMC meetings. Using intraday trading data, we find that market volatility is more than three times higher during press conferences given by Chair Jerome Powell than during press conferences by his predecessors Janet Yellen and Ben Bernanke. Press conferences since the start of Covid-19 are largely responsible for the heightened market volatility during Chair Powell's conferences. During this period, we find that markets tend to move in the opposite direction during the press conference compared to their movements following the release of the FOMC statement. In contrast, press conferences by Chairs Bernanke and Yellen tended to reinforce the markets' initial reactions to the FOMC statement. Text analysis of press conferences transcripts suggests that Chair Powell's choice of language during the press Q&A correlates with these market movements. We find that Fed communications during this period have been less effective in reducing forward-looking interest rate uncertainty.

Keywords: monetary policy, Federal Reserve communications, interest rate uncertainty, volatility

JEL Classification: E58, E52, G12