FOMC Forecasts as a Focal Point for Private Expectations

We explore empirically the theoretical prediction that public information acts as a focal point in the context of the U.S. monetary policy. We aim at establishing whether the publication of Federal Open Market Committee (FOMC) inflation forecasts affects the cross-sectional dispersion of private inflation expectations. Our main finding is that publishing FOMC inflation forecasts has a negative effect on the cross-sectional dispersion of private current-year inflation forecasts. This effect is found to be robust to another survey data set and to various macroeconomic controls. Moreover, we find that the dispersion of private inflation forecasts is not affected by the dispersion of views among FOMC members