While President Donald Trump frequently tweets his criticism on the Federal Reserve's monetary policy path, a Goldman Sachs Group Inc. study found it does not significantly change the trajectory of federal funds rate futures.
Aside from tweets on the Fed, Goldman analysts also included Trump's tweets "that directly or indirectly threaten tariff escalation." The study analyzes the one-year ahead fed funds rate futures prices from before the tweet is sent to 30 minutes after the tweet was sent.
The Goldman Sachs study found Fed-related tweets only had a very small effect on futures prices, ranging from minus 2 basis points to plus 2 basis points. However, tweets on trade have a bigger effect on the prices, as they change the fed fund futures price range by minus 14 basis points to plus four basis points. The analysts said the cumulative impact is minus 40 basis points, including tweets escalating trade tensions and de-escalating trade tensions.
Tweets on escalating trade tensions reduced the fed funds futures range by about 60 basis points, according to the study.
"Our overall interpretation of these findings is that markets believe that the President primarily affects Fed policy indirectly by influencing the macroeconomic outlook, with at most a limited perceived role for tweets criticizing the Fed," Goldman Sachs analysts concluded.
JPMorgan Chase & Co. in September launched the Volfefe Index, which aims to track how Trump's tweets affect markets. It noted that since late 2018, the president has increased his overall Twitter activity, including tweets it classifies as "market-moving" — those followed by a movement in 10-year Treasury yields of at least a half basis point within five minutes of publication.
