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Press Release

Cleveland Fed Research: Financial Markets Understand the FOMC’s Data-Dependent Approach

In the past decade, it has become common to characterize monetary policy as “data dependent.” But how do financial market participants expect the Federal Open Market Committee to actually operate under a data-dependent approach?

In a new Economic Commentary, Cleveland Fed researchers Chengcheng Jia and Christopher Healy investigate how releases of new data on inflation and labor market conditions shape financial markets’ expectations for future interest rate changes. The authors find that data surprises have a stronger effect on the 2-year Treasury yield than on the expected near term federal funds rate, implying that markets don’t expect the FOMC to respond to day-to-day fluctuations as much as the longer-term trend in the economy.

The authors also find that policy communications can influence market expectations, as evidenced by the recent market expectations that policy rates are more sensitive to inflation surprises: “The FOMC successfully convinced financial markets that it would respond to inflation surprises in its efforts to bring inflation down amid the elevated readings of inflation in the post-COVID-19 era.”

Read more: Financial Markets’ Perceptions of the FOMC’s Data-Dependent Monetary Policy

Federal Reserve Bank of Cleveland

The Federal Reserve Bank of Cleveland is one of 12 regional Reserve Banks that along with the Board of Governors in Washington DC comprise the Federal Reserve System. Part of the US central bank, the Cleveland Fed participates in the formulation of our nation’s monetary policy, supervises banking organizations, provides payment and other services to financial institutions and to the US Treasury, and performs many activities that support Federal Reserve operations System-wide. In addition, the Bank supports the well-being of communities across the Fourth Federal Reserve District through a wide array of research, outreach, and educational activities.

The Cleveland Fed, with branches in Cincinnati and Pittsburgh, serves an area that comprises Ohio, western Pennsylvania, eastern Kentucky, and the northern panhandle of West Virginia.

Media contact

Chuck Soder,, 216.672.2798