The Federal Reserve Board eagle logo links to home page
Finance and Economics Discussion Series
The Finance and Economics Discussion Series logo links to FEDS home page Anticipations of Monetary Policy in Financial Markets
Joe Lange, Brian Sack, and William Whitesell

Abstract: In recent years, financial markets appear better able to anticipate FOMC policy changes. Beginning in the late 1980s and early 1990s, longer-term interest rates and futures rates have tended to incorporate movements in the federal funds rate several months in advance, in contrast to the largely contemporaneous response typically observed before that time. After identifying these emerging trends, the paper parses the enhanced predictability into a component that can be attributed to the autoregressive behavior of the funds rate and a non-autoregressive component. The paper considers institutional developments in FOMC policy making that may have contributed to each of these components, including gradualism in adjusting the federal funds rate target and transparency regarding the setting of the target and future policy intentions.

Keywords: Term structure, policy expectations, funds rate, monetary policy

Full paper (208 KB PDF)

Home | FEDS | List of 2001 FEDS papers
To comment on this site, please fill out our feedback form.
Last update: May 24, 2001