The world’s major central banks are returning to a more opaque and artful approach to policymaking, ending a crisis-era experiment with explicit promises that they found risked their credibility and did not substitute for action.
From Washington to London to Tokyo, the global shift from transparency to flexibility underscores the challenges central bankers face as they test the limits of what monetary policy can achieve.
The return to a more traditional policymaking approach and nuanced statements will challenge the communication skills of central bankers who have been chastened in the last year after some too-specific messages confused and disrupted financial markets.
Complicating things on the world stage, the U.S. Federal Reserve and the Bank of England are looking to telegraph plans and conditions for raising interest rates, while the European Central Bank and the Bank of Japan are heading the other way.
“Central banking used to be an art,” said a senior official of a G7 central bank. “It became less so once, globally, but with what’s happened at the Fed and the BoE, it may be back to being an art.”
Both the Fed and BoE had promised to hold interest rates near zero until their jobless rates had fallen to a particular level. However, unemployment in the United States and Britain fell much more quickly than economists expected and both central banks scrambled to replace their suddenly outdated “forward guidance”.
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