Abstract: Voting seats at FOMC meetings rotate between Reserve Bank presidents on a yearly basis. Using detailed data on 488 FOMC meetings that took place between 1969 and 2021 and predetermined rotations of voting rights, we show that economic conditions in Reserve Bank presidents' districts affect Federal funds target rates only when those presidents hold voting seats at FOMC meetings. Federal funds futures reflect this effect of local economic conditions on FOMC decisions. Supporting the voting mechanism, we show that voting presidents dissent based on economic conditions in their districts. Reserve Bank presidents' districts are more likely to be mentioned in FOMC transcripts than are the districts of non-voting presidents. Finally, we show that the path of the target rate would have been different if economic conditions in all districts affected FOMC decisions.
Abstract: Using the text of 200 million pages of 13,000 US local newspapers and state-of-the-art machine learning methods, we construct a novel 170-year-long time series measure of economic sentiment at the country and state levels, that expands the existing measures in both the time series (by more than a century) and the cross-section. We show that our measure predicts economic fundamentals such as GDP (both nationally and locally), consumption, and employment growth, even after controlling for commonly-used predictors, and materially predicts monetary policy decisions, particularly during recessions. Our measure is distinct from the information in expert forecasts and leads its consensus value. We use the text to isolate information about current and future events and show that it is the latter that drives our predictability results.
