Strategic Control of Facial Expressions by the Fed Chair

TL;DR

This study examines whether the Federal Reserve Chair strategically uses facial expressions during press conferences to influence markets, finding that expressions are interpreted differently over time and are not intentionally controlled.

Contribution

It introduces a novel analysis of nonverbal cues in monetary policy communication using facial recognition and deepfake technology.

Findings

Facial expressions serve as distinct public signals.

Expressions are interpreted differently by markets depending on the Chair and time.

Fed Chairs do not intentionally control their facial expressions.

Abstract

This article investigates whether the Federal Reserve Chair strategically controls facial expressions during FOMC press conferences and how these nonverbal cues affect financial markets. I use facial recognition technology on videos of press conferences from April 2011 to December 2020 to quantify changes in the Chair's nonverbal signals. Results show that facial expressions serve as a separate public signal, distinct from verbal content. Using deepfakes, I find that the same facial expressions expressed by different Fed Chairs are interpreted differentially. As their tenure increases, negative expressions become more frequent, eliciting adverse market reactions. Furthermore, the markets interpretation of these expressions evolves over time, suggesting that investors process facial cues with dual-processing finite-state Markov memory. In line with the Fed's goals of transparency and non-volatility, I find that Fed Chairs do not strategically control their expressions.