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 current Chair Jerome Powell than during press conferences by 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 the market tends to move in the opposite direction during the press conferences compared to its movement following the FOMC statement publication. In contrast, press conferences by Chairs Bernanke and Yellen tended to reinforce the market's initial reaction to the information released in the FOMC statement. Text analysis of the Q&A portions of Powell’s press conferences suggests that his choice of language correlates with these market movements. We find that Fed communications during the recent 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