Fed Communication And Rates Volatility

This report examines how Federal Reserve communication styles, specifically press conferences and transparency, impact market volatility and pricing accuracy. It concludes that while greater transparency has historically stabilized markets, shifting to more ambiguous or less frequent communication may increase future volatility.

Key Takeaways

• 1.Fed transparency reforms since the mid-2000s have improved market pricing accuracy and reduced volatility more significantly than the introduction of the SEP and press conferences.
• 2.Hidden disagreements ('covert dissents') within the FOMC are a larger source of rates volatility than official, public dissents.
• 3.Chair Powell's press conferences were associated with higher intraday volatility compared to the Bernanke/Yellen eras, partially due to a different communicative style.

Table of Contents

• Thirty Years of Increasing Transparency
• Fewer Press Conferences Reduce Policy Space, But Chair's Style Matters
• Dissenting Votes Induce Less Vol Than Covert Disagreement Among Committee
• TRADE IDEAS
• Best Trade Ideas Across Assets
• Global Interest Rates Strategy
• Disclosure Appendix