From Tone to Trajectory: Continuous Sentiment and the Shape of Monetary Policy Communication

Summary

Central bank press conferences are scrutinised line by line. Most research reduces each statement to a single number. We measure the tone word by word across ECB and Fed press conferences and track how it rises, turns, and settles across the statement — its „sentiment arc.“ The shape of that arc helps predict the next rate decision and how professional forecasters revise inflation expectations, on top of the overall tone. How a statement is arranged, not just what it says, is part of the signal.

Highlights

Measuring the shape, not just the tone
Central bank statements are usually boiled down to one average tone score, which ignores structure. We instead measure sentiment word by word across ECB and Fed press conferences, tracing the shape of each statement — its „sentiment arc“: overall level, trend, and curvature.

The arc predicts the next rate decision
The shape of the arc helps predict the ECB‘s next interest rate decision — on top of the average tone, and not just because certain topics appear in certain parts of the statement. Where firm or cautious language sits, and how consistently a stance is held, carries a policy signal.

Forecasters respond to structure
Arc shape is also linked to how professional forecasters revise their inflation expectations after a press conference — evidence that the audience responds to structure, not only to headline content. For the Fed the pattern is similar but narrower, matching its more standardised style.