And the reality of the FOMC’s size and diversity, not to mention uncertainty about the evolving structure of the economy and the effects of monetary policy actions, means that we are still far from the ideal world of a fully worked out, clearly specified and transparent consensus on what economists call a “reaction function” – a complete description of how policy will respond to changes in economic conditions.
Often when communicating about the path of policy, it will be hard to avoid a combination of the two forms of guidance. For example, the Committee has embraced the view that the equilibrium level of the federal funds rate is currently below its pre-crisis level and expects the funds rate to return only gradually to its longer-run value.