Fiscal Constraints and the Power of Words: Does High Debt Mute the Fed?

ABSTRACT We test whether high public debt is associated with reduced effectiveness of Federal Reserve communication. Using voice sentiment measures extracted from FOMC press conference Q&A sessions, we estimate local projections and find that high debt significantly attenuates the estimated association between voice sentiment and industrial production. The attenuation is particularly strong for hawkish (anger) and dovish (happiness) emotional tones, and for overall positive voice sentiment. Our results are robust to a series of robustness checks, including alternative lag lengths, monetary policy controls, and textual sentiment as a control. These results align with fiscal constraint theories and extend recent evidence on debt and monetary policy transmission, suggesting that elevated public debt weakens not only conventional interest‐rate policy but also the power of forward guidance and central bank signaling.