Key facts
- Federal Reserve Governor Christopher Waller believes forward guidance can be a valuable tool for monetary policy.
- Waller stated that forward guidance can strengthen policymaking and be useful.
- He noted that market interest rates began to rise steadily in fall 2021 when the Fed steered investors toward coming rate hikes.
- Waller acknowledged that there are moments when providing guidance about future policy has hindered, rather than helped.
- He suggested that inflexible forward guidance can hinder policy transmission and that in some cases, it is best not to use it at all.
Federal Reserve Governor Christopher Waller stated that forward guidance can be a valuable tool for monetary policy transmission, particularly when used appropriately. In remarks prepared for a Bank of Italy conference, Waller noted that guidance can speed the impact of policy changes, citing the rise in market interest rates in fall 2021 as an example of its effectiveness. He also acknowledged, however, that forward guidance can be problematic when used inflexibly or in environments with uncertain economic outcomes, potentially hindering policy transmission. Waller's comments highlight an ongoing debate within the central bank regarding the optimal use of forward guidance, contrasting with views that emphasize a more limited approach to such communication.