Signaling the future path of the federal funds rate can therefore directly affect interest rates today on auto loans, home mortgages, and bonds issued by companies and state and local governments, even when the current level of the federal funds rate cannot be lowered. The FOMC has substantially expanded its forward guidance in recent years.
In 2009, the Committee stated that economic conditions “are likely to warrant exceptionally low levels of the federal funds rate for an extended period”.14 In 2011, the FOMC said this period would likely last “at least through mid-2013”, and extended this date guidance several times.15 A disadvantage of this calendar-based approach was that it might not be clear whether changes in the date reflect changes in the FOMC’s outlook for growth, for inflation, or a shift in the desired stance of policy.