Casual observation confirms that market participants do pay close attention to FOMC statements and that these statements often move markets. But have FOMC statements had the effects that were intended? And how important have these effects been, relative to the impact of the rate-setting decision itself?
With two Federal Reserve colleagues, Vincent Reinhart and Brian Sack, I recently developed new empirical evidence on these questions, some highlights of which I will briefly share with you today (Bernanke, Reinhart, and Sack, 2004).3 The effects of FOMC actions and statements are reflected most clearly and directly in financial markets; so to try to measure these effects my coauthors and I studied the responses to FOMC decisions of some key interest rates and asset prices.