Walsh: Fed Should Gradually Reduce Forward Guidance

On April 21, Fed Chair nominee Walsh stated that the Federal Reserve should reduce its reliance on forward guidance and warned that excessive transparency could hinder policy flexibility when circumstances change. He remarked, “The Fed reveals to the world… what their predictions will be,” but noted that “the Fed clings to its predictions for too long,” a phenomenon related to the Fed’s delayed response to soaring inflation during the pandemic from 2021 to 2022. In his view, reducing commitments would facilitate more flexible decision-making, as “if the Fed waits until meetings to make decisions, this gradual assessment process can help the central bank avoid repeated mistakes.” He sees this as part of a broader reform agenda and added, “I believe these changes are very necessary, and if confirmed, I look forward to implementing them.”