The Effects of the Federal Reserve Chair’s Testimony on Interest Rates and Stock Prices

"The Effects of the Federal Reserve Chair’s Testimony on Interest Rates and Stock Prices," authored by Matthew V. Gordon and Kurt G. Lunsford, and published in November 2023 as part of the Federal Reserve Bank of Cleveland Working Paper Series. This paper presents an in-depth analysis of how the testimonies of the Chair of the Board of Governors of the Federal Reserve System influence financial markets, specifically focusing on interest rates and stock prices.

The key aspects of the paper include:

1. Study Focus: The paper examines the impact of congressional testimony about monetary policy by the Federal Reserve Chair on interest rates and stock prices. It differentiates between testimonies associated with the Federal Reserve's Monetary Policy Reports (MPRs) and those not associated with MPRs but still related to monetary policy.

2. Types of Testimonies Analyzed: The research separately studies the first and second days of MPR testimony, as well as non-MPR testimonies.

3. Key Findings:

   • First-day MPR testimonies generally cause larger movements in interest rates than other testimonies and generate negative co-movement between interest rates and stock prices.
   • Second-day MPR testimonies result in the smallest movements in interest rates and do not produce a noticeable co-movement between interest rates and stock prices.
   • Non-MPR testimonies have similar but weaker effects compared to first-day MPR testimonies.

4. Methodology and Data: The study uses a variety of data sources and methodologies to analyze the impact of these testimonies. It considers changes in interest rates and stock prices, measuring these changes in relation to the timing of the testimonies.

5. Implications for Policy and Research: The findings have implications for understanding the communication strategies of the Federal Reserve and the effectiveness of different types of testimonies in conveying monetary policy intentions to financial markets.

This paper offers valuable insights into the nuances of monetary policy communication and its impact on financial markets. It would be particularly relevant for economists, financial analysts, policymakers, and anyone interested in the interplay between central bank communications and market dynamics.

Source: https://www.clevelandfed.org/publications/working-paper/wp-2326-federal-reserve-chairs-testimony-effects