And, indeed, the forecasts of bond market participants and the resulting rise in private yields will help to contain inflation, doing some of the Fed’s work for it. In closing, for me the lesson of the May 6 statement was to underscore the vital importance of central bank communication.
In a world in which inflation risks are no longer one-sided and short-term nominal interest rates are at historical lows, the success of monetary policy depends more on how well the central bank communicates its plans and objectives than on any other single factor.