Central banks’ ‘forward guidance’ proving a tricky policy tool

"I see higher rates in your future. Or maybe lower rates...Or maybe they will stay the same. I am cautiously optimistic..."
“I see higher rates in your future. Or maybe lower rates…Or maybe they will stay the same… I am cautiously optimistic with a negative bias…”

Everything about central banks is “tricky.” This is good to keep in mind always when considering monetary policy. Tricky.

(From Yahoo Finance)

Widely used only since the financial crisis, forward guidance has been seen as a way to influence market expectations without implementing actual policies, especially at a time when conventional tools are nearly exhausted.

Developed more than a decade ago in places like Sweden and New Zealand, forward guidance can either publicly commit to future action — or inaction — or predict economic performance and a likely monetary policy reaction at a specific time.

But when the reality turns out differently, banks often have to backtrack, eroding their credibility.

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