On Wednesday, the Federal Open Market Committee (FOMC) will close its two-day policy meeting and release its forecast statement. While it is unlikely that the Fed will radically change its policy, investors will be looking for clues that may affect stock price movements and interest rates.
Mani Sethuraman, assistant professor in the SC Johnson College of Business at Cornell, will be watching the Fed announcement with an ear to its tone, which he has found correlates with that of corporate managers and equity analysts in their subsequent stock recommendations.
“The market anxiety today about the Fed's impending announcement is not surprising, given the vast evidence on the importance of monetary policy communication to capital markets.
“In fact, in a very recent research paper co-authored with Gustavo Cortes (University of Florida) and Felipe Silva (University of Missouri), we find that the tone of FOMC policy announcements significantly impacts the tone of conversations between corporate managers and equity analysts in earnings conference calls, thereby affecting both stock price movements during the dialogues as well as subsequent analyst stock recommendation revisions.”