Philip N Jefferson: Reading between the lines? Textual analysis of central bank communications

Speech by Mr Philip N Jefferson, Vice Chair of the Board of Governors of the Federal Reserve System, at the Macroeconomics and Monetary Policy Conference, Federal Reserve Bank of San Francisco, San Francisco, California, 21 February 2025.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Figures accompanying the speech

Thank you, President Daly, for organizing this conference and for the opportunity to talk to this group. I have paid close attention to the papers presented at this annual conference in the past, and I look forward to today's presentations and discussion.

Today, I will talk about central bank communications and the use of textual analysis tools. These tools help process qualitative information that may be hard to capture in numerical forecasts. Also, they can improve our understanding of economic concepts that are otherwise difficult to measure. This topic has been covered at this conference in the past. Last year, for example, there was a paper on the program that highlighted the importance of considering the impact that speeches by the Chair of the Federal Reserve (Fed) have on asset prices when evaluating the transmission of monetary policy to the rest of the economy. This paper also shows that speeches by the Vice Chair are less important than those by the Chair. So this might be a good time to catch up on your text messages! (Just kidding!)

My talk is organized as follows. First, I will briefly discuss central bank communication and its effect on asset prices. Next, I will discuss how recent advances in automated textual analysis may be having an impact on how the information in central bank communication is incorporated into asset prices. Then I will review how researchers and market participants use textual analysis techniques, among other techniques, to gauge who is listening to central bank communication and to understand how monetary policy is transmitted to the economy. Before concluding, I will broaden my coverage and discuss how textual analysis tools can be used to estimate difficult-to-measure concepts in economics such as uncertainty and supply chain disruptions.

These new textual analysis techniques are important to me as a policymaker because I want to understand how our communications are being heard, interpreted, understood, and acted upon.