Federal Reserve Governor Waller: Forward guidance is not necessarily better in greater quantities; it can be completely avoided when necessary.

BlockBeats news, July 6, Federal Reserve Governor Waller stated that monetary policy formulation cannot mechanically apply historical experience, but should judge policy effects based on the current economy's "initial conditions."

Regarding forward guidance, Waller said it remains a valuable tool that can influence markets in advance and accelerate policy transmission.

For example, after the FOMC signaled future policy tightening in September 2021, although actual rate hikes did not occur until March 2022, the two-year U.S. Treasury yield had already risen by nearly 200 basis points during that period, with the market completing part of the policy transmission early.

But Waller also pointed out that when forward guidance is too strong or rigid, it may instead weaken policy flexibility and delay policy adjustments.

He mentioned that the conditions for exiting the effective lower bound on interest rates set by the FOMC in September 2020 were not adjusted even after inflation rapidly rose well above 2% and unemployment quickly declined in 2021, unnecessarily delaying the timing of rate hikes.

Waller stated that forward guidance can help accelerate monetary policy transmission, but if it lacks flexibility, it may also hinder policy transmission; in some cases, the best option is not to use forward guidance at all.