We examine the impact on the ten-year Treasury yield of FOMC participants’ speeches and FOMC communications in 2013. There were many opportunities for the FOMC to move the market last year.
- In 2013, the market scrutinized FOMC communications for any hints on the meaning of a “substantially” improved labor market outlook, a key condition for ending QE3.
- FOMC communications about the start of tapering were also a focus of market attention last year, often resulting in sizable movements in Treasury yields.
- At times, the market seemed to tie the timing of the first funds rate hike too closely to that of the start of tapering, with the market-implied expectation of the first hike occasionally moving more than was warranted by the FOMC’s rate guidance.
The “I Moved Markets” award goes to the FOMC member who had the greatest total impact on the ten-year yield.
- President Bullard wins! On a cumulative (absolute change) basis, he moved the ten-year yield by 29 basis points last year.
- Chairman Bernanke, the winner in 2012, came in second, moving the ten-year yield by 21 basis points in 2013.
The “Power Player of the Year” award goes to the FOMC member with the greatest market impact per speech.
- Not surprisingly, Chairman Bernanke, the 2012 winner, again had the greatest impact on a per-speech basis.
- In a departure from previous years, Board members other than the Chairman moved the market substantially.
- Governor Stein was the runner-up, with Vice Chair Yellen coming in third place. Yellen’s market impact increased markedly after she became the Chair nominee.
The “Market Neutrality” award goes to the FOMC member who managed to most consistently talk about monetary policy without affecting market prices.
- This year’s “Market Neutrality” award goes to President Dudley.
- There were others whose net market effects were less than President Dudley’s, but we found it remarkable that he managed to deliver relatively market-neutral policy-relevant speeches, despite being one of the most influential members of the FOMC.
Official FOMC communications were far more market influential than speeches, on a per-event basis.
- FOMC statements and the Chairman’s press briefings were by far the most market-moving events.
- While speeches were less influential than official FOMC communications on average, there were several speeches that rivaled even the most market-moving official events in terms of market impact.
Every year we write a special issue of our Fixed Income Focus series devoted to gauging the market impact of speeches by FOMC members and official FOMC communications. As we did last year, we rank FOMC members according to the effects of their speeches on the ten-year Treasury yield.
We examine the market effects not only of speeches, but also of television and radio broadcast interviews. For simplicity, however, unless otherwise noted, we refer to all individual communications by members as speeches-except the Chairman’s semiannual monetary policy testimonies before Congress and his post-meeting press conferences.
We consider only those speeches that have at least some forward-looking content on monetary policy or the economic outlook. We measure the market impact of a speech as the change in the ten-year Treasury yield over a window that normally begins 15 minutes before and ends two hours after the speech. When economic data releases or Treasury auctions interfere with this 2-1/4-hour window, we either adjust the window or exclude the speech. This helps us better isolate the market impact of the speeches included in our analysis. We generally exclude speeches with coinciding start times.
We also look at the market impact of official FOMC communications, such as FOMC statements and minutes. We include the Chairman’s semiannual monetary policy testimonies and post-statement press conferences in the FOMC communications category because the Chairman effectively speaks on behalf of the Committee at these events.
Market Reaction to Speeches by Individual FOMC Members
Figure 1 shows the sum of the absolute value of the impact on the ten-year Treasury yield of each member’s public speeches. President Bullard ran away with it in 2013 with a total impact of 29 basis points. Chairman Bernanke, the winner for 2012, came in second with a total impact of 21 basis points. President Fisher was again third with about 16 basis points, narrowly edging out Presidents Lockhart and Williams.
Yet again, the most impactful speakers, with the exception of the Chairman, were Bank presidents, at least by this metric. The greater market impact of presidents is not at all surprising. Governors are usually more reluctant than presidents to take positions in public that differ from those of the Chairman. Like the Chairman, governors inevitably feel they are representing the FOMC when they speak in public, so they usually seek to clarify the policies of the FOMC rather than question them. They are much less likely than presidents to speak off the cuff. Indeed, unlike the presidents, they rarely do live interviews. Having said that, governors spoke more frequently in 2013 than in 2012, and some had a much greater market impact than in previous years.
Who Talked the Most
Figure 2 shows, for each member, the total number of speeches that were included in our database for 2013. Overall, we examined 173 speeches by FOMC members: 151 speeches by presidents, five by the Chairman, and 17 by other Board members. President Fisher again had the most speeches included in our analysis (23), one more than his chart-topping total from 2012. President Bullard, runner-up in 2012, came up just short with 22 speeches included, exceeding his total of 14 in 2012.
Chairman Bernanke came in 13th place, as we could include only five of his speeches. Vice Chair Yellen edged him out this year, with seven speeches. Though there were more speeches from governors than in 2012, they still spoke infrequently: The bottom eight in terms of the number of speeches was made up of the seven governors plus President Pianalto of the Cleveland Fed. The regulation-focused Governor Tarullo again provided no speeches that we could include in this analysis. The newest Board members, Governors Powell and Stein, spoke more than in 2012: We included five speeches total from the two of them, versus only one in 2012 (from Governor Stein).
Market Response per Speech
To account for the fact that some FOMC members speak more often than others and thus have more opportunities to affect market prices, Figure 3 shows the absolute market impact per speech for each FOMC member.
On a per-speech basis, the average market impact of presidents was about 1 basis point, barely up from 0.9 basis point in 2012. In contrast, governors other than the Chairman had a much greater average market impact: 1.6 basis points, compared to an average impact of only 0.3 basis point in 2012.
As noted above, presidents have a greater propensity than governors other than the Chairman to comment on market-sensitive issues in their speeches, so it might seem a bit odd that governors had a greater average impact than presidents did in 2013. Much of that increase is attributable to Governor Stein, who came in second place in this category with a per-speech impact of three basis points. In a June 28 speech, he started off in true governor fashion, clarifying that the FOMC’s decision to provide guidance on the likely timing of tapering and the end of QE3 was not “a statement of unconditional optimism, nor…a departure from the basic data-dependent philosophy of the asset purchase program.” However, his speech elicited a six-basis-point rise in the ten-year yield because of his more presidential comments that the FOMC should place a large weight on the stock of cumulative news since the start of the program “in making a decision in, say, September.”
Chairman Bernanke again had the largest impact per speech: 4.2 basis points, up from 1.5 basis points in 2012. His first-place finish should not be surprising, as he is the “messenger,” the one who’s generally expected to introduce the possibility of an upcoming action or change in policy direction.
Vice Chair Yellen came in third with an impact of 1.5 basis points per speech. However, she had an average impact of nearly three basis points for several events after she had become the FOMC Chair nominee (versus 1/2 basis point on average for speeches earlier in 2013). This illustrates the weight the FOMC Chair carries, especially considering how little news there was in her remarks.
Presidents Bullard and Lockhart virtually tied for fourth place, each having an average impact of about 1.3 basis points. While President Bullard has occasionally been at odds with FOMC policy, he was part of the consensus in 2013, though his emphasis on the need for further asset purchases to counter very low inflation likely put him to the dovish side of the Chairman. President Lockhart, a centrist, seems to be a bellwether of the FOMC consensus.
In contrast, President Fisher, the most frequent FOMC speaker in 2013, was the least impactful on a per-speech basis. His ranking likely reflects his out-of-consensus views, which tend to provide less information on the direction of policy.
Directional Bias and “Market Neutrality”
We also examine the net effect of FOMC members on Treasury yields, measured as the sum of the market impact of each their speeches (Figure 4). On net, FOMC speeches increased the ten-year yield by about 27 basis points in 2013, consistent with the overall run-up in yields for the year. Indeed, last year’s run-up was attributed in large part to more-hawkish-than-expected comments by FOMC members, particularly on tapering and ending QE3.
Presidents Lockhart and Williams had the largest and second-largest positive impact on the ten-year yield, respectively. The market likely saw the centrist Lockhart and the more dovish Williams as more reliable indicators of a hawkish turn on the FOMC than the hawks themselves. President Bullard had the greatest negative impact (-5.2 basis points), followed by the Chairman (-4.4 basis points). President Bullard, a proud hawk, is particularly focused on the FOMC’s price stability mandate. In 2013, that made him outspoken about the need to defend against too-low inflation-indeed, more than any other member.
Many FOMC members have a very small impact on financial markets. We offer the “Market Neutrality” award to the FOMC member with the least net impact on markets. For 2012, we gave this award to the entire Board of Governors excluding the Chairman. But the governors were not so neutral in 2013. While Governor Duke, who left the Board in August, had a cumulative impact of less than one basis point, she only gave one speech, so we “disqualify” her. We use more subjective judgment than in previous years in picking the winner of this coveted award. We choose President Dudley, a very influential member who gave a significant number of speeches (9) but had a net impact of only three basis points.
Impact of “Official” FOMC Communications on Yields in 2013
Figure 5 compares the market impact in 2013 of official FOMC communications. We distinguish meetings that featured a statement, economic projections, and a news conference from those that featured only a post-meeting statement.
As one might expect, the largest market impact, on average, came from the release of those statements that were accompanied by economic projections and followed by news conferences (8 basis points). Not only are there more events within these windows, but the market also tends to perceive a greater probability of action at those meetings that are followed by news conferences-despite FOMC members’ insistence that policy decisions are not influenced by the schedule of news conferences. Figure 5 also shows that, on a per-event basis, speeches were less influential than any form of official FOMC communication last year.
The June and September FOMC statements and press briefings had far more market impact than any other FOMC event in 2013. At his June press briefing, the Chairman signaled that the FOMC anticipated tapering and winding down QE earlier than the market had thought, leading to a 13-basis-point rise in the ten-year yield as the market started pricing in high odds of a first tapering announcement in September. Ultimately, however, the FOMC’s surprising decision not to start tapering in September led to a 17-basis-point decline in the ten-year yield.
Unlike in 2012, some influential speeches by FOMC members rivaled some official communications in terms of market impact. Both the Chairman and Governor Stein moved markets more with their speeches, on average, than either the minutes or monetary policy testimonies did.
We congratulate President Bullard and Chairman Bernanke for their market-moving performances in 2013. We also recognize New York Fed President and FOMC Vice Chair Dudley for his ability to deliver market-neutral speeches, despite being one of the most influential members of the FOMC. Beautiful certificates recognizing their accomplishments are in the mail. No doubt, former-Chairman Bernanke will take the opportunity to proudly display his many certificates on the walls of his office at Brookings!
Looking at this year’s competition, recently sworn-in Chair Yellen is of course the favorite for the “Power Player of the Year” award. We also welcome at least three new entrants for the 2014 competition (assuming the current nominees for the Board are confirmed by the Senate): Board Vice Chair Fischer, Governor Brainard, and Cleveland Fed President Mester (effective June 1). Speeches by Stan Fischer, in particular, will be closely scrutinized by the market for any signs of differences between his views and those of the Chair. All this suggests that 2014 will be an interesting year for FOMC communications. Let the competition begin!
 By “members,” we mean all Board governors (including the Chairman) and all Federal Reserve Bank presidents, including those who did not vote last year.
 Of course, we are aware that many other factors, including noise, drive fluctuations in yields. Our assumption here is that they average out to zero during the measurement window, such that we attribute the full movement in the ten-year yield within the window to the news element in the speech.
 As already noted, we had to exclude many speeches from our analysis because they happened to be scheduled for roughly the same time as another speech or market-moving event.
 Please see our Policy Focus, “Yellen’s Remarks: Is There Any News?” November 13, 2013.
 In 2013, the FOMC changed the timing of its post-meeting communications, beginning with the March meeting: Statements and minutes have since been released at 2 p.m. For meetings with news conferences, the statement and economic projections are released at 2 p.m., with the press briefing beginning at 2:30 p.m.
This is from a commentary that was published on March 6, 2014.