Communication in general, and forward guidance in particular, is now a monetary policy tool in itself, geared towards the evolution of long-term rates. In this regard, BIS Chief Economist Hyun Shin recently recommended central banks that when trying to shape rates through communication, they should avoid reading too much into the development of market rates.
Otherwise, “they could find themselves in an echo chamber of their own making, acting on market signals that are echoes of their own pronouncements.” If central banks are to use communication as a policy tool, they must not shy away from necessary guidance for fear of market backlash. Otherwise, communication can become circular.