Overlooked governors' speeches predict policy surprises
Markets overlook public signals from Federal Reserve governors outside the Chair and Vice Chair roles, David Gauthier finds in a Banque de France paper. Their speech tone predicts rate forecast errors and subsequent forward-guidance surprises.
Public words left unpriced
David Gauthier analyzes 4,177 speeches and testimonies by 66 Federal Reserve Board members over 1961–2024 using a fixed-dictionary Monetary Stance Signal.
Chair and Vice Chair speeches draw about 65 Reuters articles each, against 10 for other governors, despite equal measured reporting fidelity.
Non-Chair tone predicts survey and futures forecast errors; predictive power increases with the horizon.
Joint speech signals explain 18 percent of one-year survey forecast-error variation, with predictive content entirely in the non-Chair term.
Across 228 scheduled meetings in May 1995–December 2023, a one-standard-deviation change in non-Chair tone predicts a 0.172-standard-deviation forward-guidance surprise after public-news controls, but not the target-rate surprise.
Promotion changes who listens
The promotion comparison follows Roger Ferguson, Ben Bernanke, Donald Kohn, Janet Yellen, Jerome Powell, Lael Brainard and Philip Jefferson.
Coverage rises from 14.2 to 62.7 articles per speech after appointment as Chair or Vice Chair.
Their tone stops predicting forecast errors, while expressed stance remains statistically unchanged.
A transcript-based model assigns non-Chairs 40 percent of observed attention against an optimal 54 percent.
These are point estimates; the derived attention measures have no reported standard errors.
Public does not mean priced
The paper challenges the treatment of announcement surprises as wholly unforecastable shocks.
Its attention benchmark is an ex-post comparison using transcripts released with a five-year lag, not a real-time trading opportunity.
More speeches alone do not ensure better-informed prices, Gauthier concludes.