The US economy is poised for a big week, with major data and a key policy decision set to show where the nation stands. But the economic path ahead is still a bit cloudy, with fears of a recession rising and uncertainty about Trump’s tariffs lingering. The dollar is weaker than it’s been in 50 years, squeezing Americans’ travel budgets and making it more expensive to shop abroad. And some supermarkets are using digital price tags that change prices multiple times a day, triggering worries of surge pricing.
A Simple Lesson About Economic News
Basic economic thinking would lead you to expect certain rela- tionships between news and asset prices. For example, economic strength should be good for stocks, while inflationary pressures should push interest rates higher. But does the data actually support these expectations?
To investigate this question, we have designed an experiment to measure how economic news affects stock, bond, and foreign exchange markets. The results show that only a few economic announcements give rise to significant and measurably per- sistent asset price responses. These effects are strongest in the case of interest rates, and least pronounced for stock prices.
We also find that the underlying signal is often contaminated by survey information. Since surveys of forecasts are conducted well in advance of the actual data release, a lot of information on the indicator may have accumulated by the time of the release. Thus, we have developed a methodology to clean survey data of this noise and estimate the impact of real (as opposed to measured) news.