Fed Governor Waller: May Abandon Forward Guidance When Necessary to Maintain Policy Flexibility

CoinFeed July 6 news, Federal Reserve Governor Waller said at a conference on monetary policy transmission in Rome, Italy, that monetary policy decisions must be based on the current economic 'initial conditions' and cannot mechanically apply historical average experiences. He pointed out that large-scale shocks trigger nonlinear behavioral changes, thereby altering monetary policy lags and the slope of the Phillips curve. Waller emphasized that forward guidance can influence markets in advance and accelerate policy transmission under certain conditions, but if the wording is too rigid or faces multiple possible scenarios, it can limit operations such as FOMC rate hikes and delay adjustment timing. The Fed has established a working group to assess the role of forward guidance, and he believes that in some situations, the tool should be weakened or even stopped, and instead rely more on real-time economic data for decision-making.