A Matter of Minutes: Unexpected FOMC Communication and Fed Credibility

Abstract Unexpected revelations in the Federal Open Market Committee (FOMC) meeting minutes may provide critical information and hinder the Federal Reserve’s (Fed) credibility. Our analysis explores the impact of unanticipated content on FOMC policy discussions, revealing that more-hawkish-than-expected minutes reduce daily stock market returns by raising the risk premium. We also find a non-linear relationship between the unexpected minutes’ sentiment and the Fed’s credibility: surprise hawkish revelations can worsen credibility, with larger deviations further de-anchoring long-term inflation expectations from the 2 % target. Our findings suggest that the Fed should continue refining its communication strategies to avoid the damage of unexpectedly hawkish minutes in its credibility.