The two officials agree on the limits of forward guidance but diverge on how far the retreat should go, a distinction that carries direct consequences for mortgage professionals watching every Fed signal for clues about rate direction.
“I continue to believe that forward guidance can be a valuable tool that has, at times, significantly strengthened policymaking and will continue to be useful,” Waller said.
When the Fed first steered investors toward coming rate hikes in the fall of 2021, market interest rates began rising before the central bank took any formal action. “When it works, forward guidance can change economic conditions more quickly than adjusting the policy rate alone,” he said.
Where the two officials converge
Waller did not dispute that guidance can go wrong. He pointed to 2020 and 2021, when the Fed’s commitment to near-zero rates effectively locked policymakers out of acting sooner — contributing to a delay in raising the federal funds rate until March 2022, even as inflation surged well past the 2% target and unemployment fell rapidly.
“If it is not flexible enough, it can hinder policy transmission. And, in some cases, it’s best not to use it at all,” he said.
