Study finds financial markets overlook key Fed voices, missing signals

The research analyzes communications from members of the Federal Open Market Committee (FOMC) dating back to 1961. It suggests that the tone of interventions by governors who receive less media attention than the president and vice president can help predict errors in interest rate anticipation and surprises related to forward guidance – signals about the future path of monetary policy.

This means investors may be caught off guard by official announcements that had previously been hinted at months earlier. The study emphasizes that it does not suggest decisions are known in advance, but rather that public signals are undervalued by the market.

The paper also explores how a speaker’s position within the Fed impacts their visibility. When a governor is promoted to the presidency or vice presidency, media coverage of their speeches increases significantly. Analyzing 865 speeches between 1992 and 2024, the study found that coverage post-promotion was three to six times higher than before.

This demonstrates the influence of institutional authority over individual prominence. The research concludes that media and financial attention strongly follows institutional authority, while relevant information can be distributed among multiple committee members.

The document proposes a model of rational inattention, suggesting that forecasters underweight the contributions of less visible governors. This sheds light on how interest rate expectations are formed and how asset prices react to monetary policy announcements.

The findings are specific to the Federal Reserve and the data used in the study. They do not constitute a prediction of future U.S. policy decisions or a direct demonstration of investor behavior regarding European Central Bank communications. As with other Bank of France working papers, this analysis does not necessarily reflect the institution’s position.