Considerable Period of Time: The Case of Signaling Future Policy

There has been a remarkable increase in FOMC communication over the last decade. Perhaps the most dramatic change was the inclusion of language indicating the possible direction of future policy. One example is the now famous “considerable-period” language that was inserted in August 2003. This forward-looking language was remarkable in that it seemingly signaled the Committee’s intention to keep rates low for an extended period. This Commentary analyzes the reasons behind the “considerable period-of-time” language, and it argues that such language was important to stem further declines in inflation since the funds rate was already close to its lower bound of zero.