Fed Governor Christopher Waller defends forward guidance while urging more flexibility

Federal Reserve Governor Christopher Waller said forward guidance can be a valuable tool that speeds monetary‑policy transmission when used flexibly, but can hinder policy if applied rigidly. In remarks to a Bank of Italy conference in Rome, he noted that the tool helped shape market expectations during the 2021 rate‑hike cycle, yet warned that “when it works, forward guidance can change economic conditions more quickly than adjusting the policy rate alone.”

Waller’s comments come as new Fed Chair Kevin Warsh has signaled the Fed will abandon forward guidance, repeatedly stating “no forward guidance.” Other central‑bank heads – ECB President Christine Lagarde, BOE Governor Andrew Bailey and Bank of Canada Governor Tiff Macklem – have voiced similar reservations. Waller added that the Fed now sees high inflation as its chief risk, with a stabilising labour market, and that the risk balance has “completely flipped around.” He cautioned that in periods of divergent economic scenarios, forward guidance may do more harm than good and should sometimes be omitted entirely.