Jawboning the Fed: Do Markets Listen When Administrations Talk?
Baretti et al.
Political pressure on the Fed for lower rates moves near-term rate expectations down by about 1 basis point per event, an effect gone after three months; pressure for higher rates has no effect.
Source published · In the Daily Brief of 26 October 2026
Filed under Quantitative finance, Markets
The authors ask whether markets price political pressure on the Federal Reserve as a signal about future policy. They classify Reuters newswire articles from 1988 to 2025 into dovish and hawkish pressure with an ensemble of open-weight language models, then estimate the daily response of rate expectations across the term structure, the dollar, inflation compensation and volatility.
Dovish pressure lowers near-term rate expectations by roughly 1 basis point per event, equivalent to a 4% rise in the implied probability of a cut at the next meeting. The effect decays monotonically and vanishes beyond three months. Hawkish pressure has no detectable effect, and excluding the Trump presidencies does not weaken the estimate.
The dollar weakens while inflation compensation and volatility stay stable, which the authors read as markets pricing expected accommodation rather than a loss of credibility for the inflation anchor.