Ben S Bernanke: Central bank talk and monetary policy (Central Bank Articles and Speeches)

A few days before the last meeting of the Federal Open Market Committee (FOMC), I noticed a wire service story about the upcoming meeting with the following headline: “It’s Not What They Do, It’s What They Say.” The story alluded to the fact that, with a 25-basis-point increase in the federal funds rate target at the FOMC meeting being widely anticipated, financial-market participants planned to focus their attention instead on the statement that would accompany the announcement of the rate decision. In doing so, they hoped to garner information about the FOMC’s outlook and policy intentions that might prove useful in pricing fixed-income securities and other assets. Indeed, it has not been uncommon in the past few years for financial markets to react more strongly to changes in the wording of the Committee’s statement than to its decision about the target for the federal funds rate itself.