Prattle Analytics parses Fed statements to predict the future (of interest rates)

  • Monday, April 13, 2015

By Scott Kirsner – Boston Globe

Should you make a trade based on what the Fed just said?

Startup Prattle Analytics is building software that can parse the verbiage in the latest press releases and meeting minutes issued by the Federal Reserve Bank and other central banks around the world. And after raising $250,000 last September, the company has set up an office in Cambridge.

CEO Evan Schnidman, who earned his PhD in economics from Harvard, says Prattle is the only company with employees at both the Cambridge Innovation Center in Kendall Square, and the CIC’s St. Louis outpost, where his co-founder and CTO works.

“The Federal Reserve Bank issues about one statement per market day,” Schnidman says. “Other central banks issue more, some less. We believe text analysis is the best tool for analyzing what they say, looking at trends that change from when one statement is issued, or one press conference, to the next.”

Schnidman says that within seven to 10 seconds of a press release or official communication being released, Prattle’s software “reads” it and gives it a score, based on whether the language has changed, and whether than suggests a central bank is feeling hawkish or dovish about interest rates in the future (i.e., likely to raise them or keep them low).

“The word patience was big at the last Federal Open Market Committee meeting,” Schnidman says. “Would they drop ‘patient’ from the release?” (They did.)

That indicated “that they are ready to raise rates in the relatively near future,” he says. But Prattle’s scoring of the minutes was on the dovish side, “so we do not expect to see a rate increase before September.”

Customers who subscribe to Prattle’s data — there are several pricing tiers — get a feed that goes into their trading terminals. Schnidman says current customers include hedge funds, mutual funds, and futures traders.

Schnidman says there are several countries where Prattle won’t try to figure out what the central bank is saying. “We don’t analyze China,” he says. “The communications they issue are often not sincere. They’re deliberately putting stuff out there to manipulate markets.” But the company recently began analyzing central bank utterances in Turkey, Taiwan, and Switzerland.

Prattle is working on a “surprise indicator” it will release later this year, Schnidman says, looking at how much a bank’s latest statement matched or differed from expectations.

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