In his prepared remarks, Fed’s Waller said: Forward guidance remains a valuable monetary policy tool when used under the right circumstances.
Forward guidance can strengthen monetary policy transmission by influencing financial conditions before actual policy rate changes occur
When it works, forward guidance can change economic conditions more quickly than adjusting the policy rate alone. Forward guidance should remain part of the Fed’s policy toolkit and continue to be used when appropriate. The Fed’s late-2021 experience showed the drawbacks of inflexible guidance.
Guidance helped push market interest rates higher ahead of actual Fed rate hikes. However, it also constrained policymakers by effectively committing them to waiting until March 2022 before raising rates. There are times when forward guidance hinders rather than helps monetary policy.