Working Paper: CEPR ID: DP13117
Authors: Stefan Gerlach; Rebecca Stuart
Abstract: The Federal Open Market Committee (FOMC) releases quarterly its members’ views about what federal funds rate will be appropriate at the end of the current and the next two or three years, and in the “longer run.” We construct constant horizon interest rate projections one, two and three years ahead and use real-time data on 32 variables to study how these variables impact on the FOMC’s interest-rate setting. News regarding the labour market is particularly important. At the shortest horizon, prices and financial market news is also significant; at longer horizons, household’s financial situation also matters.
Keywords: Federal Reserve; Monetary Policy; Interest Rate Expectations; Interpolation
JEL Codes: E52; E58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Job quit rate (J63) | Interest rate projections (E43) |
| Unemployment rate (J64) | Interest rate projections (E43) |
| Labor market variables (J20) | Interest rate projections (E43) |
| Financial market variables (G19) | Interest rate projections (E43) |
| Trade and household financial situations (G59) | Interest rate projections (E43) |
| Macroeconomic variables (E19) | Interest rate projections (E43) |