Monetary Policy Surprises - San Francisco Fed

This data series is part of the Center for Monetary Research.

Monetary Policy Surprises data capture the exogenous changes in interest rates over tight windows around the monetary policy announcements of the Federal Open Market Committee (FOMC). This page provides data on both raw surprises, based on changes in money market futures rates, and surprises that are “orthogonalized” with respect to publicly available information before the announcements. Both types of surprises are updates of the series used by Bauer and Swanson (2023).

More specifically, the raw surprises are a weighted average (the first principal component) of 30-minute changes in money market futures rates around the FOMC announcements. The futures rates are for money market futures contracts covering the next four quarters, so the surprises mainly reflect changes in expectations for the future path of the short-term interest rate over the next year. The orthogonalized surprises are the residuals from a regression of the raw surprises on six economic and financial variables that Bauer and Swanson (2023) have found to be relevant predictors of the interest rate changes around FOMC announcements. The basic idea is that these orthogonalized surprises are “cleaned” of predictable variation, and therefore are better measures of the new information about monetary policy conveyed by the announcement. For additional details, see Bauer and Swanson (2023) and Swanson and Jayawickrema (2024).

These monetary policy surprises can be used to study changes in monetary policy that were unexpected from the perspective of financial market participants. The measures are helpful in empirical analysis of the monetary transmission mechanism, including both the effects on financial market variables, like Treasury yields, stock prices or credit spreads, and on macroeconomic time series, like inflation and unemployment. While the appropriate empirical methodology depends on the context, inference about the causal impact of monetary policy on other economic variables typically requires a measure of exogenous policy changes, and monetary policy surprises are useful proxies for such changes.

Figure 1: High-Frequency Monetary Policy Surprises over the Past 12 Years

Notes: 30-minute changes in interest rates around FOMC announcements, using futures rates covering a horizon of four quarters following the announcement. Surprises are measured in basis points. The blue line shows the raw monetary policy surprise, based on observed rate changes. The green line shows the surprise that is “orthogonalized” with respect to public data available before each FOMC announcement.

References

Bauer, Michael D., and Eric T. Swanson. 2023. “A Reassessment of Monetary Policy Surprises and High-Frequency Identification.” NBER Macroeconomic Annual 23.

Swanson, Eric T., and Vishuddhi Jayawickrema. 2024. “Speeches by the Fed Chair Are More Important Than FOMC Announcements: An Improved High-Frequency Measure of U.S. Monetary Policy Shocks.” Working Paper.

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Monetary Policy Surprises (Excel file, 295 kb)