“That language [in the FOMC post-meeting statement] still works today,” Williams said. But as interest rates approach neutral, a point that could be reached this year or early next, “We will have to come up with something at some point...That will be a committee decision about how best to describe where money policy is positioned.”
“We can’t keep talking about policy normalization once we’re around what we think of as a neutral interest rate... So I think this forward guidance, at some point, will be past its shelf life.”
“I do think that the statement language will have to evolve over time, to reflect the fact that at some point, we’ve got monetary policy to more normal levels -- we can’t keep talking about policy normalization once we’re around what we think of as a neutral interest rate. And so I think this forward guidance, at some point, will be past its shelf life.”
“Even if we.move away from verbal forward guidance in the future, we’re still going to have this numerical forward guidance [in the dot plot and the SEP]. It’s not forward guidance in the same way: it’s not like, ‘further gradual increase in interest rates’, it’d be more about: well here’s the perspective of the participants.
And if you think about it, once we’re closer to neutral, there will be a range of views about where interest rates should go, and it won’t be quite as clear cut as it is now, where the majority of people want to see us moving toward neutral.”
“We probably need to do more work on communicating our reaction function, and not spending so much time trying to communicate our forward guidance.”
“Now, in a perfect world, we’d find a way to use our economic projections to come up with a document that explained this in words. Right now economic projections are kind of a statistical artifact, and there’s no story to go along with that. Hopefully at some point, we’ll be able to provide, as a committee, a nice summary of -- here’s where we see the economy going. Here are the big drivers. Here are the uncertainties. And here’s what we think appropriate policy will be. We’re not going to do that anytime soon, but this was a project we contemplated years ago, a consensus forecast or something. I still think -- if we could figure out a way to do that, and make it practical, and make it effective, that would be a good way to get into this much more data-dependent, reaction-function mode.”