Assessing Fed Chair Hopefuls With NLP Analysis Of Past Speeches

This article was originally published in Forbes

Our third article on the Fed leverages third-party political trend data as well as powerful Sentieo opinion mining to break down past speeches from top contenders for the Fed Chair. We discuss possible 2018 scenarios and delve deeper into the surprising results we come across. Brush up on the previous articles and see what’s coming up next in our series using the FedSpeak lexicon here:

Sentiment Analysis Of FOMC Statements Reveals A More Hawkish Fed
Why Is The Fed Still Raising Rates? The Yellen Effect
Assessing Fed Chair Hopefuls With NLP Analysis Of Past Speeches
Predicting The FOMC Statement With Beige Book Sentiment Data

From left, Gov. Jerome Powell, Former Vice Chairman Stanley Fischer, Federal Reserve General Counsel Scott Alvarez, and Federal Reserve Chair Janet Yellen, speak together following a Board of Governors meeting. (AP Photo/Andrew Harnik)

We set out to analyze the historical speeches of the top Fed candidates with Sentieo’s natural language processing capabilities and in the process, we learned something interesting. It doesn’t matter.

The Federal Reserve is not a one-woman organization and while the chair tends to drive policy, the minutes reveal that the entire committee weighs in on decisions. Some subtle changes over the course of this year have changed the makeup of the FOMC into a more hawkish committee. Furthermore, the composition of the FOMC will change when four of the regional bank presidents and voting members rotate out for their peers.

Earlier this year, Daniel Tarullo resigned. And just a little over a month ago, Stanley Fischer, a longtime central banker, resigned from Fed Board of Governors. In their place, Donald Trump has nominated Randal Quarles, a monetary hawk who favors a rule-based approach to monetary policy, as vice chair for bank supervision. Unfortunately, transcripts of Mr. Quarles views on monetary policy are not readily available, so he is not included in the quantitative analysis.

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Why Is The Fed Still Raising Rates? The Yellen Effect

This article was originally published in Forbes

Our second investigation of the Fed’s sentiment discusses the impact Chairwoman Yellen has had on the Federal Reserve since her rise to the Chair in 2014. We created and utilized our ‘FedSpeak’ lexicon to delve into the correlation between the Fed’s intentions and Yellen’s speeches before colleagues, Congress, and the press. Read the previous article and see what’s coming up next in our series here:

Sentiment Analysis Of FOMC Statements Reveals A More Hawkish Fed
Why Is The Fed Still Raising Rates? The Yellen Effect
Assessing Fed Chair Hopefuls With NLP Analysis Of Past Speeches
Predicting The FOMC Statement With Beige Book Sentiment Data

Federal Reserve Board Chairwoman Janet Yellen speaks during a news conference following a meeting of the Federal Open Market Committee September 20, 2017 in Washington, DC. Yellen announced that the Fed will not change interest rates this quarter. This is one of the last meetings before Chair Janet Yellen’s four-year term ends in February.

The Federal Reserve conducts the nation’s monetary policy under a mandate from Congress to promote maximum employment, stable prices, and moderate long-term interest rates in the U.S. economy.

The Fed began its current round of rate hikes in 2015, and the Fed Funds target rate now stands at 1.25%, up from 0% two years ago.

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Sentiment Analysis Of FOMC Statements Reveals A More Hawkish Fed

This article was originally published in Forbes

This piece kicks off our new series on the analysis of the Federal Reserve using Sentieo’s natural language processing power and flexible Doc Search technology. We will focus on bringing interesting ideas and surprising revelations derived from thousands of public federal reserve documents. Join us as we scrutinize meetings, congressional testimonies, and press conferences with some truly impressive technology; and see what’s coming up next in our series:

Sentiment Analysis Of FOMC Statements Reveals A More Hawkish Fed
Why Is The Fed Still Raising Rates? The Yellen Effect
Assessing Fed Chair Hopefuls With NLP Analysis Of Past Speeches
Predicting The FOMC Statement With Beige Book Sentiment Data

The Federal Reserve System’s Federal Open Market Committee (FOMC) meets eight times a year, at 2 p.m. Eastern Time in the basement of a nondescript, Washington, D.C. office building. The terse statements released after those meetings drive the direction of global financial markets and the meeting minutes are carefully scrutinized carefully by the media.

We parsed recent statements and minutes since 2012 using Sentieo’s natural language processing and sentiment analysis and found some interesting trends.

For the most recent statement 9/20, the strongest topic continued to be inflation, as highlighted in the unfiltered word cloud shown here.

The intensity was roughly equivalent to the prior statement, as the Fed continues to be vexed by an inflation shortfall versus expectations. Based on the statements alone, this analysis would suggest that Fed intentions have barely changed.  However, when we apply sentiment analysis to the words in the documents using the Loughran-McDonald context-specific lexicon, which assigns a simple positive or negative value to words based on the financial services industry context, the 9/20 statement occurs as much more hawkish.

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