Fed's Less-is-More Approach May Keep Markets Stable

New research suggests that the Federal Reserve's approach to making announcements may be more effective than previously thought.

The study, which analyzed Treasury market reactions over three decades of Fed announcements, found that precise guidance can actually lead to stronger market reactions.

This seems counterintuitive, but it depends on the type of uncertainty facing the economy. When markets are faced with high levels of uncertainty, precision can exacerbate volatility.

Wake Forest Professor Aeimit Lakdawala is available for comment on the research and its implications for future Fed announcements.