Federal Reserve Governor Christopher Waller said forward guidance can be a valuable tool that helps speed up the impact of monetary policy, noting that signals in 2021 pushed market rates higher even before actual Fed hikes. He said such communication can strengthen policymaking when used under the right conditions.
However, Waller cautioned that guidance can become counterproductive if applied too rigidly, citing the Fed’s delay in raising rates until March 2022 despite earlier signals. He added that in uncertain economic environments, where multiple outcomes are possible, it may be better for central banks to avoid using forward guidance altogether.