Does a Bias in FOMC Directives Help Predict Inter-Meeting Policy Changes?

Since 1984, the FOMC has often issued directives for monetary policy that indicate a bias toward easing or tightening. This paper investigates the information content of these asymmetric directives for the likelihood of inter-meeting changes in policy during the Greenspan chairmanship. If policy is measured by the change in the average daily federal funds rate after a directive is issued, the results indicate that a bias to ease predicts a significantly lower average funds rate and a bias to tighten forecasts a significantly higher average funds rate. If policy is measured qualitatively by whether the target for the federal funds rate changed, a bias to tighten significantly raises the probability that the target will be raised, and a bias to ease significantly raises the probability that the target will be lowered