Fed Speeches Had Less Market Influence Last Year, Report Says
By Vivien Lou Chen
Feb. 6 (Bloomberg) -- Speeches by members of the Federal Reserve's interest rate-setting committee had less influence on two-year Treasury note yields last year than in 2005, according to former Fed officials Laurence Meyer and Brian Sack.
Federal Open Market Committee members gave 268 testimonies and speeches in 2006, moving the yield on two-year notes by 58 basis points in either direction, Meyer and Sack of St. Louis- based Macroeconomic Advisers LLC said in a report. The movement was about half as large as it was in 2005, they said.
Fed Chairman Ben S. Bernanke along with Fed bank presidents William Poole and Jeffrey Lacker were the central bankers whose comments had the biggest effect on markets, the report said. Smaller market movement shows investors appear to be placing greater emphasis on committee-wide views than the opinions of individual members, Meyer and Sack said.
``It was hard to find speeches that had tremendous market impact,'' Sack, a former section chief for the Fed, said in a phone interview from Washington. ``One thing it indicates is markets are getting good information from committee-wide communications. My guess it's a direction that is going to be sustained.''
Bernanke's words moved the yield on two-year notes up or down by 35 basis points, about four times as much as the next FOMC member, the report said. Comments from Poole, president of the St. Louis Fed, moved the yield by 8 basis points, and speeches by Richmond Fed President Lacker did so by 6 basis points.
Window of Trading
The study looked at a window of trading that began 15 minutes before an FOMC member's scheduled start time for a speech or testimony, and ended two hours afterward.
FOMC members gave almost as many public comments in 2006 as they did in 2005, and just as many speeches that were focused on monetary policy prospects and the near-term outlook, said Sack and Meyer, a former Fed governor.
The total market effect of all FOMC statements, minutes, and monetary-policy testimonies was 71 basis points last year, reflecting the market's greater reliance on committee-wide communications, they said.
The Federal Open Market Committee is made up of the Fed's seven governors in Washington, the president of the New York Fed who always votes on rates, and 11 other regional Fed bank presidents with rotating voting rights.
To contact the reporter on this story: Vivien Lou Chen in San Francisco at vchen1@bloomberg.net
Last Updated: February 6, 2007 15:34 EST |
