Federal Reserve Governor Waller defends forward guidance, stating that if used appropriately, it can play a positive role
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Waller stated at a conference in Rome, Italy, that forward guidance remains a valuable policy tool. During the surge in inflation in the COVID-19 pandemic period, forward guidance helped central banks signal to the public that interest rates would be raised. Even before the Federal Reserve officially increased rates, financial conditions tightened in advance as a result. However, he also pointed out that Federal Reserve officials have sometimes been too rigid in their use of forward guidance, which in turn restricted their own policy flexibility. He cited as an example that in 2020-21, the Federal Reserve clearly conveyed it would keep interest rates unchanged for a period, but inflation had already begun rising rapidly at the time.Read more
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