The Economics of the Fed Put

Anna Cieslak and Annette Vissing-Jorgensen

No 26894, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Since the mid-1990s, low stock returns predict accommodating policy by the Federal Reserve. This fact emerges because, over this period, negative stock returns comove with downgrades to the Fed’s growth expectations. Textual analysis of the FOMC documents reveals that policymakers pay attention to the stock market, and their negative stock-market mentions predict federal funds rate cuts. The primary mechanism why policymakers find the stock market informative is via its effect on consumption, with a smaller role for the market viewed as predicting the economy.

JEL-codes: E44 E52 E58 (search for similar items in EconPapers)
Date: 2020-03
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Note: AP EFG ME
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Citations: View citations in EconPapers (28)

Published as Anna Cieslak & Annette Vissing-Jorgensen & Ralph Koijen, 2021. "The Economics of the Fed Put," The Review of Financial Studies, vol 34(9), pages 4045-4089.

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Journal Article: The Economics of the Fed Put (2021)
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