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The failure of forward guidance: Lessons from the pandemic recovery

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  • Thomas L. Hogan

Abstract

This paper considers the effectiveness of the Federal Reserve's forward guidance in the 2020–2022 recovery from the Coronavirus pandemic. Forward guidance has become a common feature in macroeconomic policy models and a key tool of the Fed's monetary policy. I discuss three strategies for creating effective forward guidance: rules‐based policy, disclosing forecasts or projections, and statements by Fed officials. The Fed instituted some form of each of these strategies during the pandemic recovery. I find, however, that they were implemented in ways that made monetary policy less, rather than more, effective.

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  • Thomas L. Hogan, 2025. "The failure of forward guidance: Lessons from the pandemic recovery," Southern Economic Journal, John Wiley & Sons, vol. 91(4), pages 1265-1286, April.
    • Handle: RePEc:wly:soecon:v:91:y:2025:i:4:p:1265-1286
    DOI: 10.1002/soej.12760
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    References listed on IDEAS

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    1. Mark Gertler & Jordi Gali & Richard Clarida, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December.
    2. Andrew Patton & Allan Timmermann, 2012. "Forecast Rationality Tests Based on Multi-Horizon Bounds," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 30(1), pages 1-17.
    3. Thomas L. Hogan, 2022. "The calculus of dissent: Bias and diversity in FOMC projections," Public Choice, Springer, vol. 191(1), pages 105-135, April.
    4. Paul Hubert & Fabien Labondance, 2018. "The Effect of ECB Forward Guidance on the Term Structure of Interest Rates," International Journal of Central Banking, International Journal of Central Banking, vol. 14(5), pages 193-222, December.
    5. Jeffrey R. Campbell & Jonas D. M. Fisher & Alejandro Justiniano & Leonardo Melosi, 2017. "Forward Guidance and Macroeconomic Outcomes since the Financial Crisis," NBER Macroeconomics Annual, University of Chicago Press, vol. 31(1), pages 283-357.
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    7. Campbell, Jeffrey R. & Ferroni, Filippo & Fisher, Jonas D.M. & Melosi, Leonardo, 2019. "The limits of forward guidance," Journal of Monetary Economics, Elsevier, vol. 108(C), pages 118-134.
    8. Binder, Carola Conces, 2021. "Household expectations and the release of macroeconomic statistics," Economics Letters, Elsevier, vol. 207(C).
    9. David H. Romer & Christina D. Romer, 2000. "Federal Reserve Information and the Behavior of Interest Rates," American Economic Review, American Economic Association, vol. 90(3), pages 429-457, June.
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    11. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-491, June.
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    Cited by:

    1. Bryan P. Cutsinger & William J. Luther, 2025. "Symposium introduction: Reviewing the Federal Reserve's framework," Southern Economic Journal, John Wiley & Sons, vol. 91(4), pages 1213-1228, April.

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