The Determinants of Future U.S. Monetary Policy: High‐Frequency Evidence

Abstract

This paper examines the determinants of future U.S. monetary policy by studying the relationship between a predictor of the future direction of monetary policy and a pertinent information set. Specifically, we investigate the impact of the surprise component of an array of macro‐economic announcements upon federal funds futures rates. This investigation is conducted using high‐frequency intraday data in order to examine the exact timing of rate reactions to announcements. In doing this, we find that Non‐farm Payrolls and Civilian Unemployment announcements play a dominant role in determining future monetary policy. Moreover, we document evidence that shows that the release of such information is rapidly incorporated into rates, particularly when considering federal funds futures contracts traded via an electronic trading platform (as opposed to an open‐auction trading platform).