Fed Speak on Main Street: Central Bank Communication and Household Expectations

Abstract

The Federal Reserve emphasizes communication as a tool of monetary policy. Most research focuses on communication with financial markets, rather than with households. Although the Federal Reserve attempts to use its communication strategy to anchor inflation expectations, consumers' expectations are more weakly-anchored than professional forecasters'. Barely half of consumers expect long-run inflation to be near the 2% target. I analyze a range of survey and media data to show that this reflects a combination of low informedness and low credibility. The Fed has not fully adapted to the demands of a media environment characterized by intense competition for audience attention.