Shaping Expectations and Coordinating Attention : The Unintended Consequences of FOMC Press Conferences

In an effort to increase transparency, the Chair of the Federal Reserve now holds a press conference following some, but not all, FOMC announcements. Evidence from financial markets shows that investors lower their expectations of important decisions on days without press conferences and that these announcements convey less price-relevant information. Correspondingly, we show that investors pay more attention to upcoming announcements with press conferences. This coordination of attention can reduce welfare in models of the social value of public information. Consistent with theories of investor attention, the market risk premium is larger on days with press conferences