Working Paper

Leaning Against the Data: Policymaker Communications under State-Based Forward Guidance

Abstract: A purported benefit of state-based forward guidance is that the private sector adjusts the expected stance of policy without further policymaker communications. This assumes a shared understanding of how policymakers are interpreting the data and that policymakers are consistent in their assessment of the data. Using text analysis, we test whether the FOMC’s introduction of state-based forward guidance in December 2012 changed the tone of policymaker communications. We find that policymakers tended to downplay positive data following the introduction of the guidance, in effect leaning against the data and reinforcing the dependence of policy expectations on policymaker communications.

Keywords: Monetary policy; Forward guidance; Financial markets;

JEL Classification: E30; E40; E50; G12;

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Bibliographic Information

Provider: Federal Reserve Bank of Kansas City

Part of Series: Research Working Paper

Publication Date: 2022-09-08

Number: RWP 22-11