Forecasting Policy: Market Response to Fed Communication Trends

Abstract

Is it possible to foresee the future of the financial market? Initial analysis does not offer much hope. The thought of the nearly infinite factors at play in any market fluctuation would seem to immediately stifle even the most sophisticated techniques. But, regardless of how overwhelming prediction may be, it is a necessary precondition to action—financial or otherwise. Every investment decision financial professionals make is predicated on a projection, impossible as it may be, of what economic developments lie ahead. So the question is not really whether or not it is possible, in a strict sense, to predict the future of the financial markets. Its possibility is secondary to its necessity. The question is, instead, “what is the best way to tackle the impossible?“