Optimal policy and market-based expectations

Michael Bauer and Glenn Rudebusch

FRBSF Economic Letter, 2015

Abstract: Financial market prices contain valuable information about investors? views regarding future interest rates, inflation, and other economic variables. However, such market-based expectations can be hard to interpret because changes in risk and liquidity premiums also affect asset prices. In practice, policymakers should be cautious in relying on the expectations information in market prices.

Date: 2015
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