Federal Reserve Board research finds investor attention drove amplified market reactions to CPI surprises during the 2021-2023 inflation surge

The Federal Reserve Board published research arguing that how investors allocate attention is a key driver of how financial markets incorporate macroeconomic news. Using intraday data, the paper finds that market reactions to US Consumer Price Index (CPI) releases rose sharply during the 2021-2023 inflation surge, consistent with an attention-based mechanism rather than a broad-based increase in sensitivity to all macro announcements. Bond yields, market-implied inflation expectations, and other asset prices show significantly stronger responses to CPI surprises over this period, while reactions to other macroeconomic releases are largely unchanged. The author constructs a CPI investor-attention measure and finds attention was unusually elevated around CPI announcements and that higher pre-announcement attention robustly predicts larger market moves; similar patterns are documented around Employment Report releases and Federal Reserve announcements. The paper also reports evidence that markets tend to overreact to announcements that attract high levels of attention.