Does the Fed say it all? Textual analysis of public communications and private discussions

Public communications have been the center of studies on the effect of forward guidance. The Fed’s public communications are based on private discussions within FOMC. This paper analyses private information revealed in FOMC meeting transcripts. Combining textual analysis and time series techniques, our study finds: (1) private information has an information advantage in predicting future policy rate changes, conditional on public information and economic variables; and (2) public information does not overshadow the predictive power of economic variables. These findings imply that the Fed can be more assertive and transparent in its communication to anchor market expectations on future policy.