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This paper examines the impact of the money supply and inflation rate announcements on interest rates. Survey data on expectations of the money supply and consumer and producer price indexes are used to distinguish anticipated and unanticipated components of the announcements. This distinction is used to test for the efficiency of the financial market response to the announcements of new information. The results indicate that the unanticipated components of the announced changes in the Producers Price Index and in the money supply have an immediate positive effect on short-term interest rates. The Consumer Price Index announcement has no apparent effect. There is no evidence of a delayed announcement effect. However, there is some indication of a liquidity effect of the money supply change on interest rates. This takes place when reserves are changing and several weeks prior to the information announcement. THE EFFECT OF money supply announcements on interest rates has attracted considerable attention in both the academic literature and the financial press in the last few years. It has been firmly established that unanticipated increases in the money supply lead to immediate increases in interest rates. However, there are several competing explanations for this phenomenon in the literature. In this paper, we present some additional empirical evidence which helps to distinguish between two of these hypotheses-the policy anticipations and inflationary expectations hypotheses-by examining the effect of money supply and inflation announcements on interest rates.The positive effect on interest rates of announcements of unanticipated increases in the money supply was demonstrated by Urich and Wachtel [9], Grossman [3], and Roley [5]. The announcement effect was interpreted in our earlier paper as a policy anticipations effect and has been interpreted by others, e.g., Cornell [1], as an inflationary expectations effect. Since both effects are in the same direction, it is difficult to distinguish between them without additional evidence. The policy anticipations effect is simply that an unanticipated increase in the money supply causes financial market participants to expect that the Federal Reserve will tighten the monetary reins in order to offset the increase. In anticipation of future tightening, there is a tendency for interest rates to increase. The inflationary expectations effect is that an unanticipated increase