How Do FOMC Projections Affect Policy Uncertainty?

Abstract

In January 2012, the Federal Open Market Committee (FOMC) began publicly releasing its participants’ projections for the future value of the federal funds rate. The former FOMC Chair Ben Bernanke stated that these releases help the public form policy expectations. However, Federal Reserve Bank of San Francisco President John C. Williams noted that the range of the funds rate forecast conveyed disagreement and uncertainty. These projections may be conflicting in nature, and thus may not lower public uncertainty. Bundick and Herriford seek to answer the question: do these projections decrease or increase uncertainty about future policy? To answer this question, the authors measure how uncertainty about future interest rates changed after the FOMC began releasing its participants’ projections for the appropriate federal funds rate. The authors found that the overall uncertainty about future interest rates decreased after FOMC began releasing its participants’ interest rate projections. However, the authors found that public uncertainty is correlated with disagreement across participants’ projections. In sum, the findings provide empirical support for the claims of Bernanke and Williams.