Fed’s Forward Guidance Under Review

The US Federal Reserve’s forward guidance on future interest rates has come up for debate after a stream of central bank officials declared the current wording needs to change.

In the past few days, officials from every part of the rate-setting Federal Open Market Committee – hawks and doves, regional presidents and Washington governors – have called for new language.

Their remarks could mean a move at the September FOMC meeting in 10 days, although there is little consensus yet on new wording, so a shift might have to wait until next month.

A particular issue is the Fed’s guidance of low rates for a”considerable time” after it stops buying assets in October. A chunk of the FOMC feels that is a dangerous hostage to fortune, after steady economic progress that could yet require rate rises early next year.

“Significant parts of the FOMC statement need to change,” said Jerome Powell, a Fed governor, in a question-and-answer session on Thursday evening. “I believe it is . . . time for the Committee to reformulate its forward guidance,” said Loretta Mester, president of the Cleveland Fed, in a speech earlier the same day.

Mr Powell and Ms Mester are two of the four members of a new Fed sub-committee on communications policy. Their concern about forward guidance is reflected across the spectrum of hawks and doves on the FOMC.

via CNBC

Content is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Business Information & Services, Inc. or any of its affiliates, subsidiaries, officers or directors. If you would like to reproduce or redistribute any of the content found on MarketPulse, an award winning forex, commodities and global indices analysis and news site service produced by OANDA Business Information & Services, Inc., please access the RSS feed or contact us at info@marketpulse.com. Visit https://www.marketpulse.com/ to find out more about the beat of the global markets. © 2023 OANDA Business Information & Services Inc.