Top central bankers align on rewriting the policy playbook
Summary
Top central bankers from the U.S., Europe, Canada, and the UK agree they should communicate less clearly about their future policy plans. They want to rethink how they guide the markets and public to make better decisions about interest rates and money policies.Key Facts
- Central bankers at a conference in Portugal, including ECB President Lagarde, Bank of England Governor Bailey, Bank of Canada, and U.S. Federal Reserve Chair Kevin Warsh, shared similar views on reducing detailed forward guidance.
- Forward guidance means telling the public and markets exactly what the central bank plans to do in the future with interest rates.
- Leaders said forward guidance can trap them and is hard to change once given.
- Lagarde supports "framework guidance," which explains how decisions are made, but Warsh prefers less detailed commitments.
- Warsh will announce members of five task forces soon to provide outside advice on Fed operations.
- These task forces aim to suggest improvements by the end of the year.
- Warsh referenced the challenges caused by policies made after the 2008 financial crisis and calls this a rare chance to rethink basics.
- Former Bank of England Governor Mervyn King will lead a new task force on how central banks communicate.
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