Central bankers, who once considered obscurity central to their craft, are trying to wean the world from the predictability they’ve nurtured over 15 years of concrete guidance about their intentions and return to a time when policy starts, stops and occasional surprises were more the norm.
The endeavor is driven by recognition that renewed inflation may require higher and more frequently changed interest rates than has been the case since 2007, when a U.S. financial crisis opened an era of strong and often detailed central bank guidance that spanned the near crack-up of the euro zone, sluggish growth, an oil slump, pandemic and war.
“Communication comes with a cost of misinterpretation, and it also may limit flexibility,” Federal Reserve Chair Jerome Powell said at a Fed forum last month. “We should use forward guidance sparingly when the course of policy is either reasonably well understood, or, on the contrary, is so dependent on uncertain future developments that little really can be said constructively about the future.”
The current moment qualifies as that, with developed world central banks still trying to corral the worst inflation in 40 years, edging policy rates towards a level that will do the job but uncertain where that point may be or how their local economies will react.
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Source: business.inquirer.net
ENB
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