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Which came first for the Fed, the news or the action?

ASU prof's research shows press conferences might be driving Fed action timing.
What has more effect on financial trends: What the Fed does or what it says?
December 11, 2015

ASU professor's research shows Fed decisions affected by timing of press conferences

The financial world is awaiting an announcement next week from the Federal Reserve System, which is expected to raise interest rates for the first time in seven years.

Fed Chairwoman Janet Yellen is scheduled to discuss the important action at a press conference after the meeting, on Dec. 16.

But research by an Arizona State University professor shows that it might be the press conference that’s driving the timing of the action, not the other way around.

A new paper released by Oliver BoguthOliver BoguthOliver Boguth does research on portfolio choice and asset allocation, performance evaluation, the risk-return trade-off in dynamic settings, as well as volatility and its pricing implications. finds that the Fed’s five-year-old policy of holding press conferences after some — but not all — meetings has set the expectation that big changes will come only on press-conference days. That perception has permeated not only the financial markets, but also the media and the general public.

“It turns out that the markets behave very differently on days when there’s a press conference coming later,” said Boguth, an assistant professor of finance in ASU's W. P. Carey School of Business.

Boguth and two other researchersVincent Gregoire of the University of Melbourne in Australia and Charles Martineau of the University of British Columbia in Canada were co-authors. studied the volatility of the financial markets in response to the policy-making committee of the Federal Reserve System. The committee meets eight times a year to set target interest rates and make other decisions, and afterward always releases a short press statement. Since 2011, press conferences have also been held after four of the meetings.

“We looked at the returns of the stock market and volatility, a measure for uncertainty,” Boguth said.

“Only on days when the Fed would hold a press conference later in the day would the statement actually reduce uncertainty.

“This led us to believe that markets don’t expect important announcements when there are no press conferences later.”

The team also studied newspaper stories about the Fed both before and after the meetings, in print and on the Internet, as well as Google searches. All measures were higher for Fed meetings that had press conferences.

The results show that the Fed has essentially backed itself into a corner because it doesn’t want to disrupt the markets with unexpected moves, so it can make big decisions only on press-conference days.

“I don’t know if they could destroy billions of dollars in a second, but the information moves markets by billions of dollars,” he said.

Boguth said that before 1994, the Fed didn’t even release statements about the committee decisions. Former Chairman Ben Bernanke wanted to increase transparency, so hourlong press conferences were held starting in 2011 in which he answered questions from journalists, but only for half of the meetings. 

“The press conferences do add a little bit of transparency ... but it comes at a cost that information isn’t revealed to markets on those other days,” Boguth said.

“It’s effectively gone from eight equally important announcement days per year to four important and four minor ones, where not much information is conveyed on those days.”

Boguth said his team predicted that the big interest-rate announcement would be next week because the next press conference isn’t until March, and that would be too long to wait to raise interest rates.

A decision to raise interest rates, already implied by Yellen, is good news because it means the Fed believes the economy has recovered enough to no longer need the boost of near-zero interest rates, he said.

“Interest rates can’t stay too low for too long because they are there to give the economy a kick start, and if you stay too long the economy will overheat.”

Mary Beth Faller

reporter , ASU Now


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Honor Soluri will reprise her Army flag-toting duties at her ASU commencement.
ASU student Honor Soluri sings the praises of West campus' smaller class sizes.
December 11, 2015

ASU English student traveled around the world and back again to finally achieve her dream of a college education

Editor's note: This story is part of a series of student profiles that are part of our December 2015 commencement coverage.

It might be hard to believe, but there is such a thing as too much of the Golden State. Or at least, that’s how Honor Soluri felt in 2010 at the age of 22.

“I had just gotten laid off and I was sick of California for whatever reason. I just wanted to go see the world,” recalled the soon-to-be Arizona State University graduate.

Soluri had been taking classes at a community college in her hometown of Monrovia when she lost her job. However unfortunate at the time, it served as the impetus that led her to enlist in the U.S. Army.

Before she knew it, she was off to basic training in Missouri, then to Virginia where she trained for a job as a mechanic, and finally to her actual duty station in Georgia. There she worked maintaining vehicles in the motor pool until she was deployed to Kuwait in 2012.

The nine months she spent in Kuwait were sometimes nerve-wracking, but Soluri found solace in the company of her fellow soldiers.

“The people I was there with I was very close to. I’d see them every day ... they were like family, so it was pretty comforting having them there,” she said.

The experience also gave her the opportunity to exercise the team-player skills she’d learned while playing varsity volleyball all four years of high school.

Though she was thoroughly enjoying her time in the Army, throughout it all Soluri harbored the desire to one day return to college and get a degree — something the GI Bill allowed her to do once her service was complete in 2014.

“As soon as I knew [my service] was up, I wanted to go back [to college],” she said. “Especially considering the opportunity of the GI Bill, it would have been silly of me not to go. It would be a mistake to waste an opportunity like that that, that not a lot of people get. It was an inspiration for me.”

At that time she was ready to return to the West Coast, but not California per se. She settled for Arizona.

“It’s close to California but not quite as expensive,” she said.

ASU was her first choice because of the good things she’d heard about the university and because it seemed like a “fun and exciting place” to continue her education.

Having been an avid reader since she was young, Soluri gravitated toward English as her major:

“I've always loved reading. Growing up, my parents had a fairly extensive library and I enjoyed making my way through as many books as possible. English has always been my favorite subject out of all my classes in both high school and community college, so when it came time for me to choose a major, the choice was very simple for me.”

Opting to earn her degree through the English program offered by the School of Humanities, Arts and Cultural StudiesThe School of Humanities, Arts and Cultural Studies is an academic unit of the New College of Interdisciplinary Arts and Sciences at Arizona State University’s West campus. at ASU’s West campus, Soluri “couldn’t be happier” with her decision.

“I love the small size of the campus and the classes,” she said. “I think smaller class sizes are better because they allow for students to develop a good rapport with both instructors and classmates.”

In spring 2015 Soluri served on the editing team for Canyon Voices, the online literary magazine for ASU's New College of Interdisciplinary Arts and Sciences, something she calls “an amazing experience.”

And though she’ll be graduating next week, Soluri has no plans to leave ASU any time soon.

“Ideally, I’d like to continue on to graduate school at ASU and get my master’s degree in communications so that I can do something in human resources for the VA,” she said of her future career plans.

“Giving back to the veteran community is something that's very important to me.”

Those attending New College’s commencement ceremony on Dec. 15 will get to see Soluri briefly reprise a role she used to fill in the Army — she’ll be carrying the gonfalon for her school.

“It’s kind of funny because I used to carry a flag in the Army, so at least I won’t worry about dropping it or being awkward with it,” she said with a laugh.

Emma Greguska

Reporter , ASU Now

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