Talking Data – Distilling Central Bank Communications with NLP

In today’s installment, Ben and Anthony discuss central bank communications and what they can tell us about inflation, interest rates, and more. 

    • Where have communications headed following recent economic revivals? Any divergences in sentiment?
    • Will the Federal Reserve stick to its guns over a transitory approach to inflation?
    • How are central banks responding to cryptocurrency?

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Further reading:

Below is an up-to-date count of our central bank speech repository. We update it each week with any communications central banks within our system produce. 

We perform natural language processing on these speeches using our own central bank lexicon and can use this analysis to perform predictions such as the following forecasting Fed and ECB shadow rates.

Recently central banks around the world have been uninterested in inflation. We’ve discussed this a number of times as it contrasts with investors and the media whose fear of inflation can not easily be assuaged. 

Although the Fed appears the most concerned with inflation given the above chart, the additional context is that the Fed has been decidedly hands-off in their language. Use of passive terms like ‘wait’, ‘patience’, and ‘sometime’ are at a high point.

The European Central Bank and Asian Pacific central banks, on the other hand, both fall below the global average usage of these terms.

This leads us to the conclusion that the Federal Reserve is much more likely to stand its ground and let inflation run hot than the ECB or Southeast Asia who may more easily cave to any inflationary pressures.

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