Has the Federal Reserve’s Forward Guidance during the Pandemic Changed the Public’s Expectations?

At the onset of the COVID-19 crisis, the Federal Reserve swiftly responded by lowering the federal funds rate to its effective lower bound. It accompanied this cut in the policy rate with forward guidance—a monetary policy tool that consists of giving information to the public about the likely path of future policy rates.

In this Economic Commentary, Cleveland Fed researchers Wesley Janson and Chengcheng Jia examine whether the forward guidance provided with the April and June Federal Open Market Committee (FOMC) meetings changed the public’s expectations for the economy and monetary policy.

“We find that forward guidance was effective in altering the public’s expectations about future policy rates if it was accompanied by a Summary of Economic Projections (SEP) but not expectations about economic fundamentals,” say the researchers. “The publication of the SEP allowed the public to get more quantitative information about the likely path of future monetary policy in addition to the qualitative information given in the post-meeting statements.”

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Federal Reserve Bank of Cleveland

The Federal Reserve Bank of Cleveland is one of 12 regional Reserve Banks that along with the Board of Governors in Washington DC comprise the Federal Reserve System. Part of the US central bank, the Cleveland Fed participates in the formulation of our nation’s monetary policy, supervises banking organizations, provides payment and other services to financial institutions and to the US Treasury, and performs many activities that support Federal Reserve operations System-wide. In addition, the Bank supports the well-being of communities across the Fourth Federal Reserve District through a wide array of research, outreach, and educational activities.

The Cleveland Fed, with branches in Cincinnati and Pittsburgh, serves an area that comprises Ohio, western Pennsylvania, eastern Kentucky, and the northern panhandle of West Virginia.

Media contact

Doug Campbell, doug.campbell@clev.frb.org, 513.218.1892