Been trying to get a handle on how much weight to give Fed speakers' forward guidance compared to the actual rate decisions. Sometimes it feels like the market reacts more to the talk than the action itself, other times it's the reverse. Is there a rule of thumb for interpreting how much of a future move is already priced in based on guidance?
The market reacts to the probability of future action, not just the action itself. Guidance shifts those probabilities, but it's often more nuanced than just one or the other. You need to look at what's priced in the fed funds futures for a real idea of expectations.
Good question. I tend to think forward guidance sets the stage, but the actual decision solidifies it. The market often front-runs the talk, then adjusts with the reality.
Good question. Generally, markets try to price in forward guidance immediately. Any divergence usually comes from unexpected data releases between the guidance and the actual decision, or if the market simply misinterprets the Fed's stance initially.