Fed Tracks Market Sentiment With New Index Built from 4.4 Million Tweets

Federal Reserve researchers have developed a new measure of credit and financial market sentiment from Twitter Inc. data that they say can help forecast changes in the stance of monetary policy.

The Twitter Financial Sentiment Index uses natural language processing on the social media platform and can help estimate next-day stock-market returns, the economists said in a paper out this month. They found that sentiment worsens in response to a surprise policy tightening, and the data have some power in predicting how much the central bank will hike interest rates, too.