It is making a promise about the future, particularly about future interest rates.”[17] And despite the intervening (and frequently re-iterated) point that our statements about future policy were “an expectation, not a promise”, a recent newspaper comment, published only a couple of months ago, referred to the “many promises [made by the MPC] to raise interest rates”. There may be several reasons for this. One must be the very fact that there are these two distinct forms of communication – one much closer to a “promise” than the other – yet economists use word the “guidance” for both, distinguishing them only with the (slightly arcane) classical descriptors “Delphic” and “Odyssean”. This kind of jargon can obscure more than it clarifies and one can quite understand why people might muddle them up[18]. More generally, it’s possible that central banks probably don’t help themselves with language which, while it may seem clear to people whose job it is to think about these things, is unclear or ambiguous to others. To the economist author the meaning of a phrase “we expect the appropriate level of interest rates to be X” may be “X is the arithmetic mean of a conditional  distribution for interest rates”. To others it may come across simply as “interest rates will be X”. In hindsight, the logical structure of the MPC’s 2013 guidance linking policy to the rate of unemployment – “if not p then not q” – may well have been too convoluted to be readily understood.
But if you can find a way of tying yourself to the policy in advance – like Odysseus lashing himself to the mast of his ship – then this is in principle an effective way of easing monetary conditions, even when the policy rate itself can’t be lowered any further. It’s striking that this “Odyssean” guidance has received much more attention in the economics literature – but, in the real world, and despite often being right up against the lower bound, central banks have used it only rarely. This may be because, in practice, it’s quite difficult to make credible commitments of this sort (and because central banks have also been able to use QE). Whatever the reason, most “forward guidance” has been of the “Delphic”, more conditional form. Yet my impression is that outside observers can sometimes mistake one for the other: the “if” clause is forgotten, or downplayed, and purely conditional statements somehow get interpreted (or rather misinterpreted) as hard commitments. It’s not entirely clear why this is the case. It may be quite a deep-seated tendency. Some psychological research demonstrates that people can misconstrue “if…then” statements, particularly if they’re fairly abstract. It may also be wishful: because people don’t like uncertainty and would therefore prefer there to be some fixed path of interest rates set in advance, perhaps they’re prone to believe that this is what they’re being told. But there’s no doubt it happens.