Ahead of decisions from the Federal Reserve, financial markets are more forward-looking than we thought

As happens eight times a year, this week financial markets will again turn their attention to what, if any, change the Federal Reserve will make to its policy rate. Robin L. Lumsdaine discusses research on the anticipation of such decisions via the Fed funds futures markets, which indicates that markets “set up” much farther in advance than has been previously documented. This finding emphasizes the importance of clarity in central bank communications.