Fed’s Mester Says Forward Guidance Normalizing

March 23, 2015 Share Print 0

The forward guidance issued by the Federal Reserve should gradually evolve back to its “normal” role of communicating the thinking behind policy moves, Cleveland Fed President Loretta Mester told a bankers’ conference in Paris on Monday.

“While explicit forward guidance was used as a policy tool during the recession and earlier in the recovery, in more normal times, away from the zero lower bound, I believe forward guidance should be viewed more as a communications device,” she said, according to a text of her speech.

“As such, I would like to see the forward guidance evolve over time to give more information about the conditions we systematically assess in calibrating the stance of policy to the economy’s actual progress and anticipated progress toward our dual-mandate goals,” she added.

In a section of the speech titled “Moving from Extraordinary Back to Ordinary”, Mester said the Fed’s balance sheet would in the long run return to a more normal size and composition by reducing security holdings “in a gradual and predictable way”.

“At this point, the FOMC doesn’t anticipate selling the agency mortgage-backed securities on its balance sheet as part of the normalization process, although it might engage in limited sales in the longer run to reduce or eliminate residual holdings,” she said of the Fed’s policy body, the Federal Open Market Committee.

via Reuters

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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.