Central Bank Communication with the Polarized Public

Pei Kuang, Michael Weber and Shihan Xie

No 33524, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper examines the impact of political polarization on public trust in the Fed and its influence on macroeconomic expectations. Using a large-scale survey experiment which we fielded on President Trump's 2025 inauguration day, we study how households form beliefs about the Fed regarding its political leaning, independence, and trustworthiness. Political alignment significantly shapes perceptions: individuals who view the Fed as politically aligned report higher independence of and trust in the Fed, leading to lower inflation expectations and uncertainty. Strategic communication on institutional structure and policy objectives effectively mitigates perception biases, reinforcing the Fed’s credibility and enhancing its policy effectiveness.

JEL-codes: D72 D73 D74 E63 E70 (search for similar items in EconPapers)
Date: 2025-02
Note: AP ME
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