The economy has been growing at an accelerating pace since the end of 2022. But inflation has remained stubbornly below the target the Federal Reserve seeks to keep stable, and that’s worrying some consumers.
Basic economic thinking suggests that the release of new economic information is likely to have some impact on asset prices, mainly because market participants reassess their views about the state and future evolution of the economy. The authors explore the effects of news on various financial assets, finding that only a few announcements—the nonfarm payrolls report, the GDP advance release, and a private sector manufacturing survey—generate asset price responses that are economically significant and measurably persistent through the business day. The effects are strongest on bond yields and exchange rates, and weakest on stock prices.
A key reason why asset price responses do not track expectations is that surveys of forecasters are usually conducted well in advance of the data they are based on, giving rise to measurement errors. In an attempt to correct for this source of error, the authors use a methodology developed by Rigobon and Sack (2008) to estimate the impact of news, comparing “true news”—the indicator as released minus the expected value at survey time—to the change in asset prices over two intraday intervals: thirty minutes after the announcement (column 1) and from before the announcement through 4 p.m. (column 2).
Their findings support the view that, while small unexpected changes in some economic indicators are likely to rock asset prices over a short period, they have much smaller impacts on other indicators, and only modest effects on interest rates and exchange rates.
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