Federal Reserve Governor Waller defended forward-looking guidance, saying it could have a positive effect when used properly

On July 7, Federal Reserve Governor Christopher Waller said that if used properly, policymakers 'efforts to signal the future interest rate path could still play a positive role. Waller made the remarks at a conference in Rome. Previously, new Federal Reserve Chairman Kevin Walsh promised to reduce the Fed's reliance on so-called "forward-looking guidance" and shift to an approach that focuses more on adjusting policies based on changes in economic data. Waller said forward-looking guidance remains a valuable policy tool. Forward-looking guidance helped central banks signal to the public that interest rates would rise during the epidemic. Even if the Federal Reserve has not officially raised interest rates, the financial environment has tightened ahead of schedule. However, he also said that Fed officials are sometimes too rigid in using forward-looking guidance, which restricts their own policy space. For example, he cited that in 2020 and 2021, the Federal Reserve had made it clear that it would keep interest rates unchanged for a period of time, but inflation had already begun to rise rapidly by then.