Speaking of Inflation: The Influence of Fed Speeches on Expectations

Eleanora Granziera, Wegard H. Larsen, Greta Meggiorini and Leonardo Melosi
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Eleanora Granziera: Norges Bank
Wegard H. Larsen: BI Norwegian Business School
Greta Meggiorini: University of Auckland
Leonardo Melosi: University of Warwick, European University Institute, DNB, and CEPR

The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics

Abstract: We investigate how speeches by Federal Open Market Committee (FOMC) members and regional Federal Reserve presidents influence private sector expectations. Speeches highlighting upcoming inflationary pressures lead both households and professional forecasters to raise their inflation expectations, suggesting the presence of Delphic effects. While professional forecasters adjust their expectations in response to Odyssean communications—i.e., statements about the central bank’s reaction to the announced inflationary pressures—households do not, leaving Delphic effects dominant. A novel general equilibrium model, in which agents differ in their ability to interpret Odyssean signals, accounts for these differential patterns.

Keywords: Central bank communication; Delphic, Odyssean; inflation expectations; textual analysis; expectation formation (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:wrk:warwec:1555

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