Topic: Tough Talk: The Fed and the Risk Premium
Speaker: Anna Cieslak, Associate Professor of Finance, Duke University Fuqua School of Business
Time: 10:00am-11:30am, May 31 (Beijing Time)
Location: 4-101
Abstract:
The Federal Reserve faces a challenge of supporting the economy by cutting rates aggressively in downturns and potentially creating uncertainty about future output gap, inflation, and interest rates. We study how the Fed’s communication of its forward-looking policy stance affects risk premia in financial markets. We analyze private deliberations of the Federal Open Market Committee (FOMC) to elicit a nuanced policy stance beyond the current policy action. We show that more hawkish (dovish) views predict economically significant reductions (increases) in risk premia during the subsequent intermeeting period. The risk premium reaction unfolds gradually in the days after the announcement. The effect is not subsumed by the content of the FOMC statement and is distinct from the “on impact” risk-premium reduction caused by surprise rate cuts at the FOMC announcements, documented in the literature. We trace how the stance in the meeting is revealed via the Fed’s public communication, which we then tie to intermeeting movements in premia. The results highlight the role of communication in managing public risk perceptions.
About the speaker:
Anna Cieslak is an Associate Professor of Finance at Duke University's Fuqua School of Business, working at the intersection of asset pricing, macroeconomics, and monetary economics. Her agenda spans two related domains of macro-finance. The first area studies the dynamics of interest rates and their relationship with the macroeconomy; the second explores the interactions between central banks and financial markets. She has recently focused on central bank communication, particularly on understanding the channels through which the Federal Reserve impacts financial markets. Her research has been published in top academic outlets such as the Journal of Finance, the Review of Financial Studies, and the Journal of Financial Economics. It has also been featured in news outlets such as the WSJ and the Economist. Anna is a research associate at the National Bureau of Economic Research and a research affiliate at the Centre for Economic Policy Research. She serves as an Associate Editor at the Journal of Finance, the Review of Financial Studies, and the Review of Finance. She holds a master's degree in economics from the Warsaw School of Economics in Poland and a PhD degree in economics from the University of Lugano in Switzerland. Before joining Duke in 2015, she was on the finance faculty at Northwestern University's Kellogg School of Management.
