Monetary policy announcements and household expectations

Fiorella De Fiore, Marco Lombardi and Johannes Schuffels

No 956, BIS Working Papers from Bank for International Settlements

Abstract: We study the impact of the Federal Reserve's monetary policy announcements on household expectations by comparing responses to the Survey of Consumer Expectations before and after Federal Open Market Committee meetings, over the period 2013-2019. We find that Fed decisions strongly affect expectations of interest rates on savings accounts, bu the impact on the expectations of other variables, notably inflation, is muted. We explore three possible factors that can rationalise our results: i) lack of information, ie the signals sent by the Federal Reserve on its actions via the media are not sufficiently strong to reach a sufficiently large share of the households; ii) lack of understanding, ie not enough households grasp the transmission of monetary policy to real activity and/or inflation; and iii) lack of attention, ie most households neglect monetary policy news as they focus on issues that are perceived as affecting them more closely. We provide evidence that these explanations partly contribute to the results, but none of them fully accounts for the insensitivity of household inflation expectations.

Keywords: monetary policy; expectations; household survey; central bank communication (search for similar items in EconPapers)
JEL-codes: E30 E40 E50 E70 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2021-08
New Economics Papers: this item is included in nep-cba, nep-isf, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

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