Does Wall Street Understand Fed Speak? Monetary Policy Communication and Corporate Conference Calls

Abstract

We uncover a tone transmission channel of monetary policy wherein the linguistic tone of press releases by the shapes the linguistic tone of macro-related dialogues in corporate conference calls occurring days after such releases. Applying machine-learning techniques to a granular dataset of dialogues between managers and equity analysts during conference calls, we find that the tone of macro-related dialogues is reflected in both contemporaneous stock market reactions as well as subsequent equity analysts' stock recommendations. Critically, the semantic content of monetary policy releases is consistently observed in macro dialogues between managers and analysts. A large sample analysis suggests that the effect of monetary policy tone on corporate conference calls is stronger in more recent years and for major unconventional monetary policy announcements. Taken together, our results shed light on how economic agents interpret Fed Speak,'' underscoring non-transitory effects of monetary policy communication.