Effects of Fed policy rate forecasts on real yields and inflation expectations at the zero lower bound
Published: 28 July 2020
We study the effects of quantitative policy rate forecasts by the Federal Reserve on real yields and inflation expectations at the zero lower bound (ZLB). We study the effects of surprises in policy rate forecasts from the Summary of Economic Projections (SEP) on real yields and breakeven inflation rates derived from government bonds for forward rates across the yield curve. We find that surprises in the SEP policy rate forecasts significantly affect real yields in the expected direction across the yield curve. By contrast, breakeven inflation rates are little affected across the yield curve. In particular, five-year breakeven inflation rates five years ahead, a common measure of monetary policy credibility, are not significantly affected by surprises in SEP policy rate forecasts. This suggests that policy rate forecasts by the Fed at the ZLB managed to affect real yields without adversely affecting monetary policy credibility.
Keywords: Forward guidance; policy rate forecasts; zero lower bound
JEL codes E52; E58
Working paper no. 690
690 - Effects of Fed policy rate forecasts on real yields and inflation expectations at the zero lower bound
Discover related articles
DNB uses cookies
We use cookies to optimise the user-friendliness of our website.
Read more about the cookies we use and the data they collect in our cookie notice.