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

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza