Risk Management in Monetary Policy: A Review with Asset Pricing Implications

Anna Cieslak, Stephen Hansen and Hao Pang

No 22032, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We review recent research on how the Fed's risk-management approach shapes the overall policy stance and how it affects financial market conditions. The evidence shows that the policy stance contains a forward-looking, conditional component that has long been an integral part of the Fed's policymaking toolkit. Asymmetric forward-looking policy tilts — motivated by risk-management considerations and revealed via the Fed's communication — complement and extend beyond the effects of direct policy actions. Drawing on the transcripts of FOMC meetings between 1976 and 2019, we provide an institutional history of the tilt and its connection to how the Committee's thinking about risk evolved over decades. Going back at least to the early 1990s, the Fed has relied on tilts not only to steer market expectations but, equally importantly, to stabilize risk premia and maintain easy financial conditions. We discuss successes and challenges associated with communication via tilts and draw lessons for the renewed debate over the form and extent of central bank forward-looking guidance.

Keywords: Monetary policy; Federal Reserve; Risk management; Term premia; Central bank communication (search for similar items in EconPapers)
JEL-codes: E43 E52 E58 G12 N12 (search for similar items in EconPapers)
Date: 2026-10
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