5 5 For example, if the public hears that the policy rate will be lower for longer, it may interpret this news as policymakers saying that they expect the economy to be weaker for longer. If the message is interpreted in that way, then the forward guidance will not succeed and may even weaken current spending.
I believe we should think of forward guidance as part of systematic approach to decisionmaking and not an independent policy tool that attempts to bend expectations. As monetary policy becomes normalized, we have the opportunity to ensure the public understands that forward guidance is an integrated part of a systematic approach to policy. So, what additional steps can we take to increase transparency?