(Bloomberg) -- The Federal Reserve’s days of pledging lower-for-longer rate policy may be drawing toward a close.
“Forward guidance was highly useful in the crisis,” Fed Chairman Jerome Powell said Friday, speaking on a panel at the Riksbank’s 350th anniversary conference in Stockholm. “I think it will have a significantly smaller role going forward.”
Some Fed policy makers think forward-looking language in the central bank’s statement will soon be dated, based on the minutes from the Federal Open Market Committee’s March and May meetings. John Williams, who becomes president of the New York Fed on June 18, has talked about the fact that forward guidance might be "past its shelf life." Against that backdrop, Powell’s comments reinforce expectations that Fed communications may be headed for a change.
“When forward guidance came around, the whole point of getting the market signal is that there’s independent content in that signal,” Powell said. “If the market’s really signaling that it understands what it thinks we’re doing, then you’ve lost the content of the signal.”
Based on the minutes, two lines in the Federal Open Market Committee’s statement could get updated as rates rise toward more normal levels. One states that the “federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run” and the other says “the stance of monetary policy remains accommodative.”