Text Sentiment About Monetary Policy

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RWP 25-18, November 2025

This paper uses text data from Federal Open Market Committee (FOMC) meeting transcripts to estimate the reference levels of full employment, inflation, and financial conditions perceived by voting members and to uncover time variation in the Taylor rule parameters. We construct topic dictionaries on economic slack, inflation, and financial markets, and infer reference levels from members’ sentiment using a state-space model. The estimated employment reference level indicates that FOMC voting members generally perceived the labor market as tighter than implied by the Congressional Budget Office’s estimates between the mid-1980s and early 2000s, whereas the two measures align closely during the Great Recession and its subsequent recovery. The members’ perceived inflation target varies widely in the 1970s and 1980s, trends downward in the 1990s, and stabilizes slightly below two percent thereafter. The estimated Taylor rule exhibits shifting policy weights over time—stronger emphasis on inflation stabilization before the mid-1990s, greater responsiveness to employment deviations thereafter, and renewed emphasis on the inflation trend following the Great Recession—while interest-rate smoothing remains substantial throughout.

JEL classifications: C32, E43, E52, E58