We found that a surprise increase of 25 basis points in the funds rate target typically results in a decline in broad equity indexes of about 1 percent, whereas a change in the funds rate that is expected by the market has essentially no effect on stock prices.17 Our work is just one example of a number of event-study analyses that may well shed light on the effects of monetary policy and the channels of monetary policy transmission.
Policymakers are concerned not only about market expectations of output, inflation, interest rates, and other key variables, but also about the extent of market uncertainty about those and other variables. Financial data provide insight about market uncertainty that is obtainable nowhere else.