The Effects of the Federal Reserve Chair’s Testimony on Treasury Interest Rates

Abstract

Communication by the Federal Reserve is important for the conduct of monetary policy. We study how one form of Federal Reserve communication, the congressional testimony by the Chair of the Board of Governors (the Fed Chair), affects interest rates on 2-year and 10-year Treasury Notes. We study three types of Fed Chair testimony: the first day of Monetary Policy Report testimony, the second day of Monetary Policy Report testimony, and testimonies not associated with the Monetary Policy Report but that still relate to monetary policy. We find that the average size of interest rate changes is largest around first-day Monetary Policy Report testimonies and smallest around second-day Monetary Policy Report testimonies. We also document that the sizes of interest rate changes can vary over time and often correspond to the level of the federal funds rate.