Forward guidance is a monetary policy communication tool through which a central bank signals its likely future path of interest rates or other policy actions, in order to shape market expectations and financial conditions ahead of actual policy changes. It works by influencing longer-term interest rates and asset prices today, since those prices reflect expectations of future short-term rates. Forward guidance is a core instrument of monetary policy transmission, particularly when policy rates are near their effective lower bound.
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- Forward guidance is a monetary policy communication tool through which a central bank signals its likely future path of interest rates or other policy actions, in order to shape market expectations and financial conditions ahead of actual policy changes. It works by influencing longer-term interest rates and asset prices today, since those prices reflect expectations of future short-term rates. Forward guidance is a core instrument of monetary policy transmission, particularly when policy rates are near their effective lower bound.