The Impact of Federal Reserve Monetary Policy Announcements on Asset Prices: A Review
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This paper examines the evolution of the financial market impact of Federal Reserve monetary policy announcements. I begin by describing the changes in Federal Open Market Committee (FOMC) communication practices, especially during and after the recent financial crisis. Then, I discuss the financial market effects of three types of monetary policy announcements: decisions about the current level of the federal funds target rate, forward guidance about the future path of the federal funds rate, and announcements about future large-scale asset purchases. The existing literature has reached a consensus that Federal Reserve actions, such as changes in the federal funds target rate and asset purchases, and communication have economically important and highly significant effects on asset prices. Moreover, Fed communications and asset purchases were effective monetary policy tools during the 2008-2015 period. Hence, the Federal Reserve has not been significantly constrained by the zero lower bound on policy rates.
keywordsMonetary Policy Announcements, Financial Crisis, Federal Reserve.Author biographyCarlo Rosa, Director at Barclays Investment Bank carlorosa1@gmail.com |
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