Forward guidance
MacroDefinition
Communication tool used by central banks to influence market expectations about the future path of interest rates. Started becoming explicit during the 2008 crisis when policy rates hit zero and the Fed needed additional easing channels.
Forms: time-based ("we will keep rates low until at least mid-2024"), state-based ("until inflation falls below 2%"), or qualitative ("we expect rates to remain accommodative"). Effectiveness depends on Fed credibility and consistency.
Forms: time-based ("we will keep rates low until at least mid-2024"), state-based ("until inflation falls below 2%"), or qualitative ("we expect rates to remain accommodative"). Effectiveness depends on Fed credibility and consistency.